Sensex At 9,000: The Way Forward
With the Sensex closing above the 9,000 mark, a new milestone was reached in the history of Indian stock markets.The continued interest of foreign investors has significantly contributed to reaching the milestone. In the eyes of foreign investors, India has graduated from being clubbed with the other markets in the region and other emerging markets for a consolidated exposure to a mainline asset class in its own right that cannot be missed. There is also the dilemma about investing in India vis –a vis a faster growing China.
Economic decision-making is much slower in India compared to China but investors do appreciate that most decisions have a wide acceptance among citizens and all stakeholders and are therefore unlikely to be reversed by a successive government no matter how different its agenda might be. The Indian capital market has undergone dramatic changes over the last decade and is today comparable to best in class. Most larger projects need to access the capital market and are subject to the discipline of market place – a far superior model to an executive decision form a senior party functionary.
Investors actively look for mispriced growth opportunities. On a simplistic basis despite the market doubling in the last two years, if India is to grow at 8% plus for the next few years there must be several companies that should be able to grow at a faster pace.
Several sectors are being opened for competition for first time and if the growth in the telecom business is an indicator than there would be several more opportunities that would become available to risk capital providers. This is the rationale for the continuous inflow of foreign portfolio investment into India. This is particularly so given the rather anaemic growth in Europe and uncertainty about the continued stability of the US dollar at current levels.
However one needs to realise that the gap between "India as the only country that can absorb a trillion dollars in infrastructure creation" and "India as the country that is unable to put together the right policy framework to make this happen" is not very wide. Most investors visiting India are unable to put together are unable to comprehend the huge difficulty in meeting the enormous infrastructure deficit given that we have adequate land, capital, human resources and technology for the right project.
With the increasing affordability to pay user changes for appropriate infrastructure, it is primarily the role of the government as a facilitator for investment that needs dramatic improvement. The continuous exposure of the rural masses to the electronic media has raised citizens' aspirations. In the final analysis the improvement in the economic well being of the masses is what matters to both the electorate and the serious investor looking for growth opportunities. Not being able to meet these expectations can have serious long-term consequences to the economy. The focus of governance therefore needs to urgently shift to being an efficient enabler for fostering growth.