The Indian equity market has been flying high in 1999, rising 56% through the end of October in dollar terms, in part because of the revival of interest in emerging markets and a wave of foreign money flowing into Asia.
But some portfolio investors have been increasing their positions in India in anticipation that a newly elected stable government, vowing to charge ahead with reforms and economic growth, will fuel market performance on the country's own merits in 2000.
The formation of the new government -- with a comfortable majority in Parliament following the October elections -- offers India a respite from three years of political instability and populist politics that has been a deterrence to foreign portfolio investment.
"The recent election results were market positive since the BJP's (Bharatiya Janta Party) victory was just strong enough to get the party in, but weak enough to keep their religious and nationalist fringe elements quiet," said Zaheer Sitabkhan, a portfolio manager with Lloyd George Management in Hong Kong. "The parties in the coalition are very pro-reform and it is likely we will see more reformist policies."
The new government has unveiled its plan for economic reforms, but has not announced a timetable.
Finance Minister Yashwant Sinha has vowed to accelerate the privatization program by selling majority stakes in 24 state-owned companies, including Hindustan Cables Ltd. and Scooters India Ltd. Banking sector privatization also is a possibility.
The finance minister also is promising to reduce regulations on foreign direct investment and is urging industry to be more competitive through mergers and acquisitions.
After years of underperformance, investors in India are hoping that all of the pieces to the puzzle will finally come together. "If you look at the Indian market over the last five years, it's done nothing," said Punita Kumar-Sinha, Boston-based portfolio manager of the closed-end India Fund. "But this year it's finally broken through the previous five-year high and we think there is potential for the market to continue doing well."
Most money managers in the region see border disputes with Pakistan and its military coup mainly as distractions and view the saber-rattling as short-term buying opportunities rather than serious threats to India's recovery.