|I noticed that. SMCG also got a nice pop yesterday, but unlike IGC, the stock has not followed through this morning.|
An Election in India Buoys Stocks
Sajjad Hussain/Agence France-Presse — Getty Images
Brokers celebrated Monday outside the Bombay Stock Exchange in Mumbai, India. The Sensex index rose more than 17 percent, and the market tripped circuit breakers that led to trading halts.
By HEATHER TIMMONS and VIKAS BAJAJ
New York Times
Published: May 18, 2009
NEW DELHI — Investors in India, exuberant over the ruling party’s commanding win in the country’s monthlong election, sent stocks rocketing Monday — so fast and so far that they forced the temporary shutdown of Indian stock exchanges.
The party on Dalal Street in Mumbai, home of the Bombay Stock Exchange, was proof of just how much Indian business interests regarded the Congress Party’s surprisingly decisive victory as its own.
But the celebration could prove short-lived.
With the Congress Party and its strongest allies just 10 seats shy of an outright majority, executives and economists predicted the party’s mandate would lead to nothing less than the narrowing of China’s economic lead over India.
The new government, they said, would usher in major reforms — reducing the country’s stifling bureaucracy, updating its creaky infrastructure and outdated labor laws, and reducing the barriers to foreign investment. All of these handicaps have left India far behind China.
Congress’s mandate could “herald a paradigm shift,” said Tushar Poddar, an economist with Goldman Sachs in India, because the new government will have a much broader mandate than any in recent history.
The ruling party’s left-leaning allies in the previous coalition government worked to limit foreign investment and repel overseas influence in business and politics. For example, they helped prevent chain stores like Wal-Mart from setting up retail stores here, agitated against a nuclear deal with the United States and tried to limit privatization of state-run industries.
All the Indian National Congress party needs to do to form a government is stitch up alliances with a handful of independents and small parties to reach the 272-seat majority in Parliament.
But the euphoria of investors and analysts belied the Congress Party’s own spotty recent history when it comes to solving the problems that continue to plague India.
The party is widely credited with bringing free market reforms to India in 1991, when Manmohan Singh, an economist who was then the finance minister, scrapped the quotas and government monopolies that made up India’s “license Raj,” opening the country’s industry to private investors and foreign cash.
Mr. Singh, now prime minister, was responsible for “liberalizing the economy both within the country and opening it up to foreign investment and competition,” said Jaideep Prabhu, the Jawaharlal Nehru professor of Indian business and enterprise at the Judge Business School of Cambridge.
But Congress and its allies have been unable to effectively fight poverty and malnutrition, establish a comprehensive energy policy or orchestrate the sort of infrastructure projects that India sorely needs.
That did not stop executives and investors from predicting a new era for Indian business. The rupee strengthened Monday to its highest rate all year against the dollar, and stock markets hit curbs intended to prevent wild trading swings in just seconds.
The Bombay Stock Exchange’s Sensex index rose over 10 percent as trading opened to 13,479 points, setting off circuit breakers, while the National Stock Exchange’s Nifty rose 14.5 percent to 4,203. The Bombay exchange was closed for two hours, but when it resumed trading, the Sensex extended its gains to more than 17 percent, which set off a circuit breaker that halted trade for the rest of the day. The Sensex closed at 14,284.2 points, up 47 percent since the beginning of the year.
Morgan Stanley analysts raised their year-end Sensex target Monday to 15,300 points and said they expected Indian equities to outperform those of other emerging markets over the next 12 months.
Business owners anticipate widespread changes. “The people of India have given a decisive and clear mandate for continuity, stability and economic growth,” said Pawan Munjal, managing director and chief executive of Hero Honda Motors, India’s largest motorcycle maker. “This mandate will strengthen the hand of the central government to unlock long-awaited reforms.”
Mr. Munjal said government spending on infrastructure would help industries like cement, steel and aluminum, while lifting employment at a critical time when many big corporations have been cutting workers.
Many expect a sweeping overhaul of India’s energy policy. Power failures force many business owners to supply their own electricity for hours at a time, adding to costs and stifling productivity.
The gap between electricity demand and supply is as much as 15 percent during peak use hours, and is “increasing day by day,” said V. P. S. Chauhan, the chief executive of Kalpan Hydro, a hydroelectric power company.
Mr. Chauhan said Congress needed to streamline the process by which clearances to build new plants are granted.
Others are hoping for faster completion of infrastructure projects like roads and ports, which are often chronically delayed.
"One of the ways that India has been hampered relative to China has been the lack of infrastructure," said Wilbur L. Ross, chairman and chief executive of W.L. Ross, an investment company that has put money into airlines and textile manufacturing in India. Congress may move to privatize more infrastructure projects, he said, which could spur more growth in manufacturing, balancing the country's service-heavy export economy.
Executives and analysts say the problem is rarely a lack of money. Instead, projects are typically behind schedule because of lengthy approval processes, shoddy design work and corruption.
“The plans have started to look big now,” said Sunil Mittal, chairman of Bharti Enterprises, a conglomerate that controls the nation’s biggest cellphone company, Airtel. “But the last piece is implementation. That’s where we are struggling.”
The Congress Party, while celebrating its victory, has been trying to temper expectations. Kamal Nath, the current minister of commerce, cautioned specifically against expecting liberalization in the country’s financial sector.
In the face of the global financial crisis, India’s immediate priority would be to improve domestic demand and investment, he said in an interview Monday.
India is unlikely to throw open the doors to foreign banks anytime soon, he said, adding triumphantly that the tightly regulated Indian banking sector had remained largely insulated from the global downturn.
“As far as financial reform is concerned, we will have to be cautious looking at experience of the big financial icons of the Western world,” he said. “In the U.S., we are seeing government giving money to banks. In India, banks are giving money to government.”
The government is more likely than ever to advance “governance reforms,” he said, without specifying whether that meant streamlining government administrative services, fixing a dysfunctional police and legal system, or curbing corruption in government or business.
Many in corporate India say the country’s most pressing need is to fix the state itself, making a vast and often corrupt polity and bureaucracy more efficient and accountable.
“More important than economic reform today is state reform, administrative reform, police reform, bureaucratic reform,” said Gurcharan Das, an author who once headed Procter & Gamble’s Indian operation. “I don’t see anybody among the politicians come out and say, ‘I will make sure that teachers show up to work, and I will make sure the policeman doesn’t come harass you.’”
Indeed, the rhetoric during the election campaign — from all sides — revolved around promises to protect Indians from the vicissitudes of the global economy, not to advance India’s place in it.
Vikas Bajaj reported from Mumbai. Somini Sengupta contributed reporting from New Delhi.
Copyright 2009 The New York Times Company
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