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selecta · Member Joined: 24 Dec 2006 Posts: 813 Location: ORD

By Heather Timmons
Thursday, June 14, 2007
International Herald Tribune
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NEW DELHI: Devender Singh invested in India's volatile stock markets for the first time last year, after watching a friend make a mint. The markets promptly fell 30 percent. But Singh, who runs a travel company that leads tours to New York, did not panic. He waited, and a few months later his investments were up 10 percent. "You've got to have patience," he said. He also stopped taking his friend's advice.

For now, markets in India are on a roll, surpassing even the rosiest forecasts, thanks in part to a young, wealthy, expanding middle class that is banking on aggressive corporate growth. While Alan Greenspan, the former chairman of the U.S. Federal Reserve, is offering warnings about China, Indian indexes have hit new highs drawing in foreign investors and Wall Street banks.

Many Indian companies are looking to take advantage of the fervor. This week, the country's largest public offering came to the market, the $2.4 billion float of the real estate company DLF.

Despite a history strewn with lawsuits, fears of a property bubble and a prospectus that lists 76 different risks, DLF was oversubscribed.

On Thursday, DLF received bids for more than three times the stock on offer. It had received orders for 598 million shares by Thursday evening, according to the National Stock Exchange's Web site. Later this month, the state bank ICICI plans to tap markets in India and the United States for $5 billion.

The frothy share prices and large initial offerings are exacerbating a debate in India. Market bulls say a fundamental shift is under way as consumers tie their personal wealth more closely to India Inc., paving the way for a more prosperous middle class.

"There has been a sea change in the way people are approaching savings and investments," said Sanjay Prakash, head of HSBC's mutual fund business in India. In the past five years, he said, a lot of people became very rich.

But bears have begun to talk about a bubble fueled by naïve optimism and day trading. Indian investors have forgotten, critics say, the heavy losses they suffered after fraud racked the markets in the early 1990s and the technology bubble broke a few years ago.

"It's a bubble to the extent that we lack depth and breadth in the market," said Prithvi Haldea, founder and managing director of New Delhi's Prime Database, which tracks issues and trends in the markets. About three- quarters of the daily volume comes from day trading, he said. "It's more of a casino," Haldea said. If you ask these traders what they know about a stock, "they can't answer you," he said. While the argument continues, the recent growth — and volatility — are undeniable. In 2003, the Bombay Stock Exchange's Sensex index passed what was seen as the psychologically crucial 4,000 mark. It closed Thursday at 14,203.72, and many traders expect it to hit 15,000 this year.

In the twelve months ended June 8, India's market indexes have climbed 45.6 percent, according to HSBC. Capital in 2007 will shortly reach the $10 billion mark, thanks to a new issue from Tata Steel, which is raising money to fund the acquisition of Corus Group.

In addition, the amount of household savings invested in equities and mutual funds has risen to about 5 percent from about one percent four years ago. In May, the market capitalization of companies on the Bombay Stock Exchange crossed the $1 trillion mark, putting India second only to China among emerging markets. Meanwhile, in recent weeks, the Sensex index has yo- yoed, dropping as much as one percent in a day.

Stock-watching has become an obsession in India, one that rivals cricket and Bollywood. India has three national business television news channels and another in the planning, four national daily business newspapers and dozens of business magazines. In The Hindustan Times, a daily that claims a readership of 14 million, the world news is tucked behind the business section.

Believing in India's stock markets means believing in India itself — and in the country's ability to transform its combination of a young population, a dilapidated infrastructure, chaotic streets and unbridled optimism into a corporate superpower.

The market is "fundamentally going to rise," said D.K. Malhotra, a 46-year- old bank manager whose household has about 50 percent of its savings in the markets. Sureha, his wife, a 41-year-old homemaker, does the trading, he said, and makes her own decisions. The Malhotras have put all their investments in blue chips, companies like Reliance Industries and Maruti. "This is not a fad," Malhotra said, "we sleep quiet at night, no problem." In the Delhi headquarters of Angel Broking, across the hall from Uzbekistan's national airline, young male traders pack into computer-lined rooms that are frostily chilled against the heat outdoors. The brokerage house, which has 76 branches, has 220,000 clients and is growing 30 percent a year.

"The risk appetite here is greater than in developed countries," said Dinesh Thakkar, founder of the brokerage company, which is soliciting bids for a foreign partner. "If you've already got wealth, you don't want to take risks," he said, but if you are aspiring to be wealthy, you are willing to do so.

Younger investors, he said, were more willing to take risks than previous generations, and they understood the products. Investors in general, he said, were financially savvy because many of them had run or grown up around small businesses. Even mutual funds, which have had a difficult time attracting assets in India, are growing.

While Haldea has expressed concern about day traders, he admitted his son was active in those very markets.

"He's earning tons of money and is willing to put it into the capital markets," Haldea said. "With a growing population there are new suckers every year." Most Indian investors, though, are expressing nothing but optimism. Indian corporations are "buying companies bigger than themselves, and have confidence," said Raman Verma, a trader who started with family money and now trades for several clients. "In two or three years, the market may be saturated, but not now."
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