KEY POINTS:
Was it a warning signal?
When Indian energy company Reliance Power launched its US$2.8 billion ($3.64 billion) IPO on January 15, it unleashed a frenzied and unprecedented wave of buying. The IPO collected its billions in 60 seconds flat. Three days later it had accumulated a tsunami of applications - US$190 billion worth.
How much is US$190 billion and what can it buy? Well, how about starting with the Indian government, which has a budget of about US$160 billion annually. Reliance Power boss Anil Ambani has theoretically raised enough money to run the country for a year and have billions left.
But the frenzied hordes who sent in their cheques for Reliance Energy should have remembered one cardinal stock market rule: there's no such thing as a sure bet.
That became horribly obvious on "Mournday Monday" (as one Indian newspaper called it) when stock markets around the world tumbled. India, which has risen at a heady speed in the last two years, was a top casualty.
On Monday, January 21, India's Bombay Sensitive Index (BSE) tumbled almost as swiftly as it has risen in recent months. In a spectacular meltdown, it plummeted by about 2000 points in a whirlwind 100 seconds before trading was halted. By evening the Sensex was down about 1400 points.
The game, as we all know, didn't finish there. Once again the US Federal Reserve came galloping to the rescue and by last Friday its Herculean efforts were showing in different parts of the globe, including Mumbai, where the Sensex rose 1140 points.
"Nobody in the Indian market has ever seen such volatility," says Deepak Lalwani, director, Astaire & Partners, a London-based broking house.
What next and where do we go from here? Will India's stock market, which rose 47 per cent last year, continue its gravity defying ride or will it be pounced on by the bears and be brought brutally down to Earth?
More importantly, will a US slowdown put the brakes on the spectacular Indian growth story of the last four years that has brought in a torrent of foreign investment?
At a first glance there's no reason for nail-biting nervousness. The analysts and stock market players have all been shaken after last week's rollercoaster. But they're quick to point out the bad news is coming from other parts of the globe.
India's economy is still belting along at a spectacular speed. And, on the stock market, canny investors have, in the last week, been swooping down on stocks that had suddenly become smart buys with healthy P/E ratios.
Like a runaway train, the Indian economy has been chugging faster and faster in the last two years. Steel production is expected to double in the next three years and the world's top companies like Arcelor-Mittal and Posco are scouting for land to put up steel mega-plants.
It's the same story with cement, cars and scores of other sectors. India added 8.22 million new phone connections in November and there's no sign of a slowdown there.
"The economy is quite healthy, even now. Investment has not been impacted either by high interest rates or oil prices or the sub-prime crisis," says Dharma K. Joshi, principal economist, with Crisil, a credit rating company.
The combination of a buoyant economy and a soaring stock market has prompted scores of companies to raise money while the going is good. It's reckoned IPOs worth about US$16 billion ($20.8 billion) are soon to hit the market.
Among the biggies is Emaar-MGF, which hopes to raise US$2 billion for its gigantic real estate plans. Dubai-based Emaar is one of the world's largest property developers and is putting a lot of eggs into its India basket.
"Currently we've seen the bottom. The earnings season is over and there's a clear two or three months for the markets to stabilise," says Amitabh Chakraborty, equities president at Mumbai's Religare Securities.
One snap prediction from Goldman Sachs is that India's economy will slow a little, from a projected 8 per cent for the 2009 financial year to 7.8 per cent. "We think the economy has sufficient internal ballast so that it won't be blown off course. But it will lose some momentum," says Goldman Sachs vice-president Tushar Poddar.
It's important to remember that India was, a decade ago, easily one of the world's most insular economies. That's changing rapidly, but India is very different from China and the other countries of Southeast Asia that have built up formidable export muscle.
India's exports, by contrast, account for an anaemic 17 per cent of its GDP. So it's still relatively protected from a US slowdown, experts say.
Still, it's tough to predict where the blows will fall in coming months. The huge growth plans put together by Indian corporations have been fuelled by easy money. "A lot of the growth has come because risk capital was available from the United States. If capital becomes scarce, then growth will be affected," says Chakraborty.
Or look at the flagship software sector, which has always said it prospers in an economic downturn because more work is farmed out to cut costs. But if the US banking sector - which outsources a lot of work to India - takes a really big hit and downsizes IT deals, that could be a serious blow. The infotech sector has already been hit by the rising rupee, and Goldman Sachs predicts revenue growth will fall from 39 per cent to 22 per cent in 2008.
The software sector employs only about one million people in a country of one billion, but they're young, and big spenders.
Also, the software sector has been building new offices on a spectacular scale and snaps up almost 25 per cent of the new commercial complexes being built.
A slowdown could have a heavy knock-on effect on real estate.
What happens next? On the stock market everyone's hoping for an early rate cut, but that might not happen because inflation is creeping up.
Many analysts are just hoping for a breather in coming months. Says Lalwani: "It would be good for the markets if they don't rise quickly to all-time highs. This market has gone up by 604 per cent over five years. It needs to consolidate."
