Paran Balakrishnan: India Inc still seems a safe bet

It should have been a red-letter day for the Indian stock market. The Government's figures announced in the morning showed the economy moving along at a blistering speed and beating even the most optimistic estimates.

Then, along came GE chairman Jeff Immelt with a blue-chip endorsement during a trip to Mumbai. "I think it's [the Indian economy] at a kind of tipping point. This is what I saw in China in 2000," said Immelt.

But stock markets are strange beasts that march according to their own dictates. By close of play last Wednesday, the market had crashed 388 points, defying the bullish signals flashing from all sides. The next day it slithered downwards a further 327 points but then staged an equally powerful comeback 24 hours later.

The roller-coaster ride - heading downwards more than up - has become a daily feature for the last 20 days. On May 10, the Bombay Sensex peaked at 12,612 after a dream run that has lasted over three years. It was down last Friday at 10,451.

India, of course, isn't the only emerging market where the bears have come out to play. Across the globe, the stock markets of powerful fast-growth countries like Brazil, Russia, India and Indonesia have tumbled in the last month. And India because it rose so quickly - up 43 per cent in 2005 and a further 34 per cent since January - has crashed to earth with a greater thud than the others.

So what's happening in the world's biggest and most chaotic democracy? Has the India story suddenly gone cold before it even heated up? Why have the hedge funds and others like the Japanese developed the jitters and started taking the money home or to other money-making arenas?

The battle-hardened veterans of the stock market may be in gloom. But the economic figures are better than they've ever been.

Let's look at the growth figures. In 2005-06, India outstripped all the estimates and grew by 8.4 per cent. Growth picked up in the last quarter and galloped ahead at an extraordinary 9.3 per cent. Best of all, the spurt came from agriculture which has, in recent times, been the weakest sector of the economy.

GE's Immelt is certainly telling everyone that this is only the beginning for India. He predicted in Mumbai that GE's business is about to shift into high gear and will climb from $1 billion ($1.5 billion) currently to $8 billion by 2010. He reckons that the economy has moved into the fast track and the country's pathetic infrastructure will have to be improved to keep pace. And that, of course, is where GE fits in.

Last Thursday, the all-important infotech industry which has been the key driver that has put India in the fast lane announced that exports were up by a better-than-expected 33 per cent to $23.6 billion. The tech barons say that growth is on course to touch revenue targets of $60 billion by 2010. About 1.29 million people are employed in the software and business processing outsourcing industries and that should rise to 2.3 million by 2010.

Cynics say the Government hasn't done that much in the last two years and that the economy is moving ever-faster because of its own momentum.

But this fortnight's stock market turmoil demonstrates, if nothing else, how far India has travelled in the last 15 years. Since May 10 the foreign institutions have pulled out a hefty $2.5 billion from the market. A few years back that would have triggered a panic attack in the Government and fears of a balance of payments crisis.

Today, the Finance Minister wouldn't even get out of bed for these figures. India's foreign exchange reserves stand at a vault-busting $160 billion. And foreign investors don't move in a herd so all the money isn't about to be pulled out overnight.

In 1991 when Manmohan Singh was the Finance Minister (he's now the Prime Minister) of a country that was virtually on the skids, foreign exchange reserves had fallen to about $1 billion - sufficient to cover around two weeks of imports - and India was pawning off its gold by sending it as collateral to the Bank of England. That was when Manmohan Singh began the opening up of the Indian economy - and nobody dared to object.

But in the last two years, India has been a nation transformed. The real estate sector is growing at 12 per cent and some service sectors by 11.1 per cent.

Even manufacturing, which has often posted disappointing results, is playing catch-up with growth at 9 per cent.

What's more, scores of new manufacturing ventures are at the blueprint stage or more. Nokia has already opened its new factory in Chennai (Madras), the Korean Pohang Steel is slated to open a multibillion-dollar plant in Orissa and even Corus (the former British Steel) is looking at India.

Next turn to agriculture where growth has been disastrously lacklustre and now is moving ahead. This year, agricultural growth confounded the experts and zipped forward at 3.9 per cent against projections of 2.5 per cent. Best of all, the Government says that new investments in fruits and other cash crops are finally bearing dividends.

The fact is that there's optimism - warranted or otherwise - in whichever direction you look. So, under those circumstances, how far can the stock market fall? To be sure, it had raced ahead too far and too fast and valuations were stretched so the correction was long overdue. And, like all overdue corrections, it's a bit more brutal and jarring than expected.

But the "India story" is still intact and there should be plenty of bargain-seekers out there scouting for a good buy if values fall too far.

It's always tough to take a call on the stock market but it's still looking safe to stake a bet on India Inc.

* Paran Balakrishnan is the associate editor of the Telegraph, Kolkata