In contradistinction to the turmoil in other Asian markets, the recovery of the Indian stock market appears relatively reassured. After careening by over 4,000 points over Friday, Monday and Tuesday, the BSE Sensex has regained enough lost strength to suggest a sense of calm, if not exactly stability. This is a world apart from the index swings of 2004 and 2000, which were accompanied by shudders that lasted for quite a while. The Indian equity market, since, seems to have developed domestic direction-pointers that are based on a thorough reading of the economic fundamentals and a long-term call on the impact of capital inflows and outflows. Analysts are agreed that this is the basic reason why the freefall has been arrested, even if the US Fed?s emergency action granted the breathing space to let such analysis take hold. So, while the trading floor takeaway is that India is much too firmly enmeshed in the worldwide web of international capital to escape crossborder panic attacks, the economy acts as an effective downside limit, too. On Wednesday, there were a number of bank analysts who spoke of cue reversals, arguing that Indian market trends were leading the direction for other economies to an unprecedented extent.
Attribute that to globalisation. Like crises, even bouncebacks are swiftly transmitted. In the midst of all this comes commerce & industry minister Kamal Nath?s claim that India is ?insulated? from global turbulence. In such a large economy, the forces of demand in several sectors may be of domestic origin, but that is not the case for the financial sector. The amount of FII investment in the stock market for 2007 stood at $17.2 billion, which is no inconsequential sum. Moreover, FDI inflows into the economy are expected to touch $30 billion this fiscal. Also, even if this has not been explicitly acknowledged, India does have capital account convertibility for all practical purposes of big investment. India is not quite ?insulated? here, and if it seems relatively shielded, credit the economy?s robustness. In which case, liberalising the official regulatory framework for the sake of greater efficiency can only add to domestic confidence. Growth in most sectors of the economy is indeed driven by local factors, but this need not be overemphasised. Don?t make it sound like a moonlit garden dream.
