The stock market boom in India reached new heights on Monday with the Mumbai index shooting past 19 000 for the first time and creating paper fortunes worth billions of dollars for the country’s richest industrialists.
The record high, which saw Mumbai’s Stock Exchange Sensitive index, or Sensex, rise almost 3,5% in the course of the day, was fuelled by foreign investors seeing rapid economic growth and company profits in India. The Sensex closed 639,6 points up at 19 058.
The government has been unnerved by the recent rise, which has seen the Sensex gain nearly 3 500 points in just over three weeks. On Monday India’s richest man, Mukesh Ambani, saw his wealth increase by almost £1-billion at a rate of more than £11 000 a second as shares in his main company, Reliance Industries, jumped by 98 rupees (122p).
The boom also touched his younger brother and rival Anil Ambani, whose Reliance Energy company was Monday’s best performer. His net worth went up by £895-million.
The boom is being fuelled by foreign buyers who are looking for “safe havens” while the global credit crisis continues to cause uncertainty in mature markets. More than £7,8-billion has been pumped into Indian stock markets since the beginning of the year.
Analysts said India was “emerging as a favourite destination among Asian economies”. Amit Bhagaria of Mumbai’s Angle Broking said: “We are heading for a complete re-rating of stocks because of the kind of returns on capital Indian corporates are able to produce. They are looking at returns of 20%. That is why the money is coming.”
Despite the euphoria, the Indian government is increasingly concerned that the rise is “unsustainable”. Last Friday the country’s Finance Minister, Palaniappan Chidambaram, told a conference that the surge in the Sensex “sometimes surprises me, sometimes worries me. I don’t think the fundamentals of the economy change day to day.”
The effect was immediate: Indian share prices fell 2,1%, or 395 points, to 18 419, before Monday’s rally. “We think 30% of this is not the kind of investment India needs,” one ministerial source told The Guardian. “It is hot money flows from hedge funds looking for somewhere to put their money.”
One notable winner from the influx of cash is KP Singh, the country’s biggest real-estate baron, whose DLF builders entered the markets this year.
When first floated in July, DLF, which is building a 9 000-acre “knowledge city” in Bangalore, was worth 630-billion rupees. Thanks to Monday’s performance it is now worth 1,48 trillion rupees. Singh owns 88% of the company — and his fortune is about £16,3-billion.
Land is increasingly an explosive issue in India, where incomplete reforms have left much of the country in the hands of a few. This has led to riots and armed insurrection against attempts to industrialise large parts of India’s interior.
“Contrary to common perception, these inequalities are much higher in India than in China,” Pranab Bardhan, professor of economics at the University of Berkeley, wrote this month. “The Gini coefficient of land distribution in rural India was 0,74 in 2003; the corresponding figure in China was 0,49.” Devised by Italian statistician Corrado Gini, the coefficient measures wealth distribution on a scale from zero to one, with zero representing equal income for the whole population, and one representing a single person with all wealth. — Â