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Is Indian tycoon Mukesh Ambani about to become the world's richest man? The calculators are coming out as India's stock market soars to stratospheric levels. Ambani, the chairman of petrochemicals-to-oil conglomerate Reliance Industries, was reckoned to be worth $48 billion and climbing just a few days ago. In the global wealth stakes that puts him in fourth spot just behind Bill Gates and Warren Buffett.
Or consider property tycoon K. P. Singh who, exceeding the wildest dreams of any king in his counting house, became $5 billion richer in one single day of furious stock market action. Singh's company DLF listed in July and has almost doubled in value since then. The property tycoon, who owns huge swathes of land on the outskirts of the Indian capital, New Delhi, is now reckoned to be worth about $33 billion.
What would Alan Greenspan have said if he had happened to stop by in India last week? Yep. You guessed right. The legendary chief of the US Federal Reserve would have unequivocally pronounced that the Indian stock market was suffering from a serious case of irrational exuberance.
In three hectic, vertigo-inducing weeks the benchmark Bombay Stock Exchange Sensitive Index or Sensex has soared by 2154 points (about 14 per cent). On Friday the market was at 17,773 after a winning streak that had brokers and analysts breathless with amazement. There's an element of a bubble which has built up because of a liquidity surge, says Abheek Barua, chief economist, HDFC Bank.
The trigger, just like everywhere else in the world, was the US rate cut on September 18 that has sent a veritable tsunami of money flooding into emerging markets. In India the effect was felt instantaneously with a tidal wave of $4.2 billion coming into the country in nine days. As the cash gushed in, the market climbed from 16,000 to 17,000 in five trading sessions.
Even at these heights there's still a lot of irrational exuberance out there. Take Credit Lyonnais which has just offered the uber-bullish prediction that the Indian economy is going great guns and that the Sensex could be at 40,000 by 2010. Others also see the market climbing higher but not at such a rapid pace. This market could be at 25,000 to 30,000 in the next five years. It could even reach there quicker, says Deepak Lalwani, director, Astaire & Partners, a London-based brokerage.
Despite the steep climb, most players reckon that the downside looks limited. The market is expected to take a break in the near future but it won't fall very far. Valuations are becoming stretched but I do not see a slowdown in the economy, says Lalwani, who sees support for the market at 14,000.
Why is the foreign money heading to India? There's a combination of factors pushing the cash tsunami. First, there's the muscular rupee that has climbed to a nine-year high against the beleaguered dollar. The rupee is defying central bank efforts to keep it down.
For the foreign market players the strong rupee adds to profits when they convert it back into ever-weakening dollars. Says Barua: There's a sense that the upward trend on the currency will continue. That itself is encouraging investors.
If that's not enough, there's also the safe haven factor that's bringing the dollars into India. The foreign buyers reckon that India remains a relatively closed economy. They say its export numbers are piffling and that the economy is driven by domestic factors. So India, according to the theory, should be relatively unaffected if the sub-prime crisis takes a heavy toll elsewhere in the world.
All this wasn't supposed to be happening this year. In five booming years, the Indian market has risen by 500 per cent and back in January most foreign institutions reckoned that the India Story would need time to catch its breath. So many figured that it was time to pull money out and go underweight on the country. But the market has caught everyone by surprise and brought the foreign money back in a hurry.
Nevertheless, investors now are betting on different horses. Five years ago everyone was snapping up software stocks like Infosys and Wipro, which have been growing in leaps and bounds. Now the software stocks have been hit by the rising rupee and have fallen out of favour with stock market players.
Instead the buying tempo has changed and everyone's looking at infrastructure and real estate stocks. Evidence of that came recently when the Government-run Power Grid Corp listed for the first time and rose 94 per cent on the first day. Says Lalwani: India lacks capacity. Anything that adds to capacity is worth looking at.
What are the negative factors that could come into play and bring the India Story to a grinding halt or at least slow it down temporarily? Well, for a start there's the Congress-led coalition government which is ambling towards the precipice.
The Government is determined to push ahead with a path-breaking nuclear deal with the US. But it's facing stiff opposition from the communists who lend support to the Government and who are determined to stop any deal with the US.
Any change of Government could take the fizz out of the economy.
One caution comes from an unusual corner. Back in 2002, stock market player Rakesh Jhunjhunwala was almost laughed out of court when he offered the startling prediction that the Indian stock market would rise to 25,000 in a few years. Now he reckons that the markets could rise a bit further to 18,000 or 19,000. But that will be followed by a huge correction.
And where was Jhunjhunwala as the action reached fever pitch last week? On vacation at a health farm and he didn't sound like he was in a hurry to get back.
