Forget China, buy India, some say. This year the world's second-largest country by population stands to gain a lot from consumer spending, solid industrial production and a political mandate for economic reform. Analysts are optimistic about the prospects for its stock exchange, which had its best performance in 18 years last year with a gain of 81 per cent.
Some experts expect its key stock index to rise by as much as a third this year, while more careful forecasts see the percentage gain in the low double digits. Morgan Stanley expects the Sensitive Index on the Bombay Stock Exchange to rise by another 11 per cent this year, reaching 19,400 by the year's end. Others are even more optimistic. Seth Freeman, the chief executive at EM Capital Management in San Francisco, said the benchmark stock index could rise as much as 30 per cent this year. Mr Freeman said a lot of this growth would come from 1.2 billion Indians consuming staples.
Two thirds, however, have limited abilities to do so, as they live on less than US$2 (Dh7.34) a day, the World Bank estimates. Still, low interest rates and low levels of debt are other positive factors. "One reason to be positive on India is economic growth," said Michael Wang, the chief emerging-market strategist at Morgan Stanley. The Indian prime minister, Manmohan Singh, said in November that it was "eminently feasible" for India to return to 9 per cent growth, the average in the years between 2004 and 2008. He predicted early this month that the economy would grow 7 per cent in the fiscal year that will end in March. Morgan Stanley expects India's economy to grow 7 per cent in the next fiscal year that starts in April, after growth of 9 per cent in the current year.
Politics also play a major role, as many observers were upbeat following last year's election results. India is the world's most populous democracy. "They had very positive election results. For the first time there is a clear mandate for economic reform for the ruling party," said Mr Wang. The upbeat political environment is coupled with strong liquidity and healthy savings rates, observers said. However, there are caveats. For one, inflation has been picking up lately. As a result, the Indian central bank is expected to tighten rates.
While higher interest rates are used as a tool to slow inflation, they can also stifle economic growth. Another negative is the rising oil price, fast approaching $80 per barrel. India heavily depends on oil imports and its relatively weak fiscal position makes it hard to subsidise purchases of oil. * with Bloomberg @Email:email@example.com