China, Big Winner in Global IPO Market

Global IPO activity soared to US$227 billion with 1,559 IPOs in 2006 from US$167 billion in 2005, according to figures released today by Ernst & Young (data provided by Ernst & Young, Dealogic and Thomson Financial).

Chinese companies raised $56.6 billion — the world No. 1 in 2006. China was followed by US companies with total proceeds of $34.1 billion, and Russian companies with $18 billion was placed in the third place.

2006 saw the biggest IPO ever with the listing of ICBC in China, raising almost US$22 billion alone. In second and third place came the IPOs for Bank of China Ltd and Rosneft with each raising more than US$10 billion, beating last year's most significant IPO for China Construction Bank. Four out of the top 10, and six out of the top 20, deals were from emerging markets.

HKSE (Hong Kong) came out number one with 17% of the total capital raised worldwide. In second place with 15% was LSE.

In 2005, Chinese companies raised US$24.2 billion from stock market, second only to US's US$33.08 billion.

Another Asian giant raised US$7.23 billion from the capital market.

The source for the above data:
http://www.ey.com/GLOBAL/content.nsf/International/Media_-_Press_Release_-_IPO_Survey_Year_End_2006
http://www.ey.com/global/download.nsf/International/IPO_-_Global_IPO_Survey_2006/$file/E&Y-SGM-GlobalIPOSurvey2006.pdf
http://www.financialexpress.com/fe_full_story.php?content_id=167762

The Economist: India on fire

Feb 1st 2007 | DELHI
From The Economist print edition

India's growth rate is close to China's; but signs of overheating suggest that this pace cannot be sustained.

THE economy is sizzling and foreign businessmen and investors are swarming to Bangalore and Mumbai to grab a piece of the action. India's year-on-year growth rate could well hit double figures at some point in 2007, and the country may even grow faster than China for at least one quarter. But things are so hot there is a big problem: India's current pace of expansion may not be sustainable.

On the face of it, the figures are compelling. India's real GDP grew by 9.2% in the year to last September (the latest numbers available). Over the past four years it has clocked up an average annual pace of more than 8%, compared with around 6% in the 1980s and 1990s—and a measly 3.5% during the three decades before 1980, when highly interventionist policies shackled the economy (see chart 1). India seems to be reaping the rewards of reforms that were made in the early 1990s. These massively lowered barriers to trade and liberalised capital markets. As a result, total trade in goods and services has leapt to 45% of GDP, from 17% in 1990.

Economic growth is likely to remain strong this year, driven by booming investment and consumption. The government's five-year plan to 2011-12 has an ambitious target of 9% average annual growth. Most Indian economists expect at least 8% over the next five years. Some, such as Surjit Bhalla, of Oxus Investments, think even 10% is feasible, thanks to a surge in investment.

Optimism is abundant. Indian businessmen were the most upbeat among 32 countries surveyed recently by Grant Thornton, a London-based accounting firm: 97% of the respondents were bullish about the future. Indians are rightly proud of the huge global success of firms such as Infosys, or of Tata Steel's £5.8 billion ($11.3 billion) acquisition of Britain's Corus this week. They point to new mobile-phone subscriptions, which are running at a higher monthly rate than in China, as evidence of their economy's vigour and modernity. But look again. Perhaps the only thing really growing faster in India than China is hype.

Recent visitors to Delhi were greeted by a poster campaign by the Times of India announcing “India poised”. But poised for what? The economy is displaying alarming symptoms of overheating. This implies that demand is outpacing supply and hence the pace of growth is unsustainable. Despite lower oil prices, wholesale-price inflation has risen to 6%, which is above the 5.5% upper limit set by the Reserve Bank of India (RBI). India does not have a single rate of consumer-price inflation, but the crude average of the rates for industrial, non-manual and agricultural workers is above 7%. Capacity utilisation is higher than at any time in the past decade and severe skill shortages have caused wages to rocket.

The RBI is also concerned about a credit boom. Bank lending to firms and households has expanded by 30% over the past year. Lending on commercial property is up by 84% and home mortgages by 32%. Asset prices look bubbly. After rising more than fourfold over the past four years, India's stockmarket is one of the emerging world's most expensive, with a price-earnings ratio of more than 20. House prices in many big cities have more than doubled over the past two years.

Against this sweltering background, the RBI's interest-rate decision on January 31st looked timid. It raised its overnight lending rate by a quarter-point to 7.5%, but left the reverse repo rate (which it uses to drain excess liquidity from the banking system) unchanged at 6%. Over the past couple of years interest rates have risen by less than the rate of inflation, so they have fallen in real terms.


The inflation numbers probably understate the degree of overheating. When demand outpaces supply in an open economy it is more likely to show up in a current-account deficit than in inflation. India's deficit widened to more than 3% of GDP in the three months to September—a huge swing from a surplus of almost 4% in the first half of 2004. And the true gap between domestic demand and supply is even bigger. Yaga Venugopal Reddy, the RBI'S governor, recently drew attention to how India's current-account deficit is larger once you exclude the money sent home by Indians abroad. These remittances do not reflect domestic demand or supply, but are more like a capital inflow. Excluding workers' remittances, India's deficit is running close to 5% of GDP (see chart 2)—larger than the equivalent deficit during India's balance-of-payments crisis in the early 1990s.

Keeping up with demand

The risk of a financial crisis is slight, because India has the cushion of $180 billion of foreign-exchange reserves, which is equivalent to 11 months' imports, and its external debt is small. But this misses the point. The reason for concern about India's widening current-account deficit is not that it heralds a financial crisis, but that it is a signal of how supply cannot keep pace with red-hot demand.

Furthermore, unlike China and most other Asian emerging economies, India is heavily dependent on short-term portfolio capital inflows, rather than foreign direct investment, which is longer-term. Short-term capital has accounted for four-fifths of capital inflows into India over the past three-and-a-half years—although, encouragingly, foreign direct investment did pick up strongly last year. This means India is vulnerable to rising interest rates if there is a sharp reversal in the appetite for risk in global financial markets.

How fast can India grow? Most standard methods of estimating the trend—or potential—rate of growth (the maximum at which an economy can expand without triggering a rise in inflation) arrive at figures of around 7%. But business people, investors and an unusually large number of economists, are convinced that India is undergoing a “paradigm shift” and so backward-looking historical data are now irrelevant for assessing future growth.

India's capacity for growth has certainly increased over the past decade, thanks to earlier reforms. Yet given widespread signs that India is already exceeding its speed limit, there is a high risk that if the economy continues to grow at 9% or more, it will get ever hotter. Inflation will climb higher and financial imbalances will widen, running the risk of a hard landing. India has no genuinely independent central bank to put on the brakes. And policymakers are understandably reluctant to cool demand when India needs rapid growth to create jobs and reduce poverty.

An alternative to slowing demand is to boost supply by speeding up reforms and attacking the many bottlenecks caused by inadequate infrastructure, dreadful public services, skill shortages and rigid labour laws. But improving infrastructure and education not only takes time, it also requires money, and India's fiscal finances are far from healthy.

On the surface, the government has made great strides to cut its budget deficit. The IMF forecasts the deficit for central and state governments will fall to 6.2% of GDP in the fiscal year ending in March, slightly below budget and down from a peak of 10% in 2001-02. Some of the reduction is due to greater fiscal prudence and reduced tax evasion, but it also reflects a cyclical upswing in tax revenue on the back of the economic boom and low interest rates, thanks to the global liquidity glut. If interest rates rose because foreign investors lost their appetite for risk, or if the economy slowed, the budget deficit would widen.

It already looms dangerously large. Chetan Ahya, Morgan Stanley's economist in Mumbai, calculates that off-budget items, such as oil and power subsidies, amount to another 1.8% of GDP. This puts the total deficit closer to 8% of GDP, the biggest among the main emerging economies. India also has the highest ratio of public debt to GDP, at 80% (see chart 3).

The budget deficit could swell further over the next few years. Generous tax exemptions for exporters in special economic zones may erode future revenues. And the government's Sixth Pay Commission, due to report by April 2008, is likely to lead to a big rise in public-sector pay. Its predecessor's report marked the start of a sharp downturn in public finances; and the new recommendations will be implemented in 2009, an election year.

Again, the concern is not that India's public borrowing causes a financial crisis. Most of it is funded through domestic, not foreign, debt and controls on capital outflows ensure that domestic savers buy government bonds. The real problem is that India's weak fiscal position constrains its future growth by leaving no room for more public spending on infrastructure, education and health.

Leaving the farm

The growth optimists point to India's favourable demography. The population of working age will continue to rise for several decades, whereas in China it is expected to fall. This, it is argued, will boost India's workforce and both saving and investment. Furthermore, 60% of India's labour force is engaged in low productivity farming. As workers shift from agriculture to more productive jobs in industry and services, this will automatically boost GDP growth. Yet this assumes the newcomers will all find jobs. If those jobs do not appear, the so-called demographic dividend will more likely turn into a demographic disaster. Some 60% of the demographic bulge will come in five poor and badly governed states.

This is just one example of how economic commentators tend to confuse India's long-term potential (what is feasible provided the best policies are put in place) with its current potential (ie, non inflationary) growth rate. That India has huge long-term potential is undeniable, but without reforms the country cannot fully exploit it.

All agree that the biggest obstacle to growth of 9% or more is India's infrastructure—especially its lousy roads, ports and power. According to the World Bank, the average manufacturing firm loses 8% of sales each year from power cuts. India spends 4% of its GDP on infrastructure investment, compared with China's 9%. In absolute dollar terms, China spends seven times as much on its infrastructure.

India's government has ambitious plans to increase total infrastructure spending to 8% of GDP over the next five years. This will involve some increase in government spending, but the idea is for the bulk of it to be financed by public-private partnerships. That will be hard.

Private investors, especially foreign ones, still shy away from sectors like electricity and roads because they are uncertain of earning a reasonable return. Only about half of all electricity generated is paid for, because power is stolen and bills are left unpaid. Saumitra Chaudhuri, the economic adviser at ICRA, a credit-rating agency, argues that public-private partnerships first require regulatory reforms to protect the interests of both investors and consumers. As the World Bank put it in a report last year, “when systems are failing, it is not enough to fix the pipes, one needs to fix the institutions that fix the pipes.”

Another obstacle to growth in manufacturing is India's labour laws, which are among the most restrictive in the world. Firms employing more than 100 people cannot fire workers without government permission, which discourages expansion. Today's central government cannot scrap these laws because it relies on the support of the communist parties. In theory, the state governments can apply the laws more flexibly, especially in the special economic zones, but this is unlikely to lead to more flexible labour markets overnight.

A third big problem is the dreadful quality of public services, from education and health to the provision of water. Half of urban households lack drinking water within the home; one quarter have no access to a toilet, either public or private. Many public services in cities have worsened in recent years. In Bangalore water is now available for less than three hours a day, compared with 20 hours in the early 1980s. This may be another reason why workers are not moving in from rural areas as rapidly as in China.

Nor are young Indians equipped for more productive jobs in the towns. The quality of education and health care is dire. A survey in 2003 found that only half of paid teachers were actually teaching during school hours. Another survey found that government health centres in poor parts of Delhi had a more than 50% chance of prescribing a harmful therapy for common ailments.

Bizarrely, India has one of the most privatised health systems in the world. Government spending accounts for only 21% of total health spending. Likewise, in eight of 18 states studied more than half of all children in urban areas are in private schools. But this is not a model for free-market economics or the result of policy reform. People go private only because public services are so bad. Subir Gokarn, an economist at CRISIL, another credit-rating agency, worries that because the educated middle class do not use public services, there is less public outcry for reform than there should be.

Sadly, the prospects for dramatic change in the near future look slim. With a few exceptions, such as the partial opening of retailing to foreign investment and the privatisation of the two biggest airports, reforms have stalled since the government took office in 2004. Despite the reformist instincts of Manmohan Singh, the prime minister, the need to maintain the coalition overwhelms the appeal of reform.

Back to school

The supply-side constraints of infrastructure, labour laws and public services seem formidable, yet the vast majority of local economists in Delhi reckon that annual growth of at least 8% is sustainable even without further reform (with reform they look forward to 9% or more). A popular argument is that other Asian economies grew by 8-9% for long periods, so why not India? But East Asian economies invested much more in education and infrastructure than India does today.

A recent study from Goldman Sachs, which forecast that India could sustain 8% growth until 2020, was widely trumpeted in Indian newspapers. However, the bank's report clearly stated that this would require better education, labour market reforms and less red tape. Oddly, most newspapers failed to mention that.

Indeed, it is possible to detect a belief among some that it is now India's “right” to match China's growth rate of 10%. Even the finance minister, Palaniappan Chidambaram, has felt the need to remind people that present rates of growth are not “because some kind god smiled at us”. No country “deserves” rapid growth, unless it puts in place the right policies. The biggest danger of today's rampant economic optimism is that it could breed complacency about the need for reforms. That would be a sure recipe for a future slowdown.

India needs faster growth to create more jobs for its expanding population and to make it easier to relieve poverty. The awkward truth is that although the economy is sprinting ahead, most people are only crawling. Although the educated middle class has enjoyed big salary increases and a surge in the value of their homes and shares, the 60% of the population close to or below the poverty line have not yet seen a material gain.

Measured by the commonly used gini coefficient, India has less income inequality than China or America. But it has much more poverty. Some 260m people still live on the equivalent of less than $1 a day. Half of all children under five are malnourished. India needs rapid growth. But by itself that is not sufficient to end poverty, warns Rajiv Kumar, the director of ICRIER, an economic research institute. Better infrastructure and education are needed to make the rural poor more mobile so they have an escape route. In this way, better infrastructure and improved public services can not only increase growth, but also spread the rewards.

To boost sustainable growth, India needs to clear the path ahead rather than risk running an economy beyond its safe maximum speed. Indians are understandably eager for their economy to sprint like a tiger rather than amble along like an elephant. Yet few animals have an elephant's stamina or can travel as far in a day—provided its way is not blocked.

The News comes from here.

China`s capital market charge

WORLD MONEY

A V Rajwade / New Delhi January 15, 2007

China had the largest issues of fresh equity in the year, exceeding even the issues in the US last year.

The speed and scale at which China changes, and digests the changes, never ceases to amaze me — from Mao’s cultural revolution to Deng’s capitalistic revolution is less than five years; from Asia’s worst infrastructure in the early 1990s to perhaps the best in a decade; from the mess in the banking space to the world’s largest ever IPO and second largest bank by market capitalisation in five years. Reforms have been instituted in totality in the financial sector. One manifestation of this is that more than $100 billion of corporate funding (a fifth), came through sources other than bank loans. Not all of this can be characterised as capital market activity in the traditional sense, as there seem to be some instruments peculiar to China.

More than half the amount raised from non-bank sources was in the form of IPOs, making China the largest issuer of fresh equity in the world. This is remarkable considering that, after new issues had been suspended by the authorities for a year, issuance resumed only in the middle of last year. A recent issue by the China Life Insurance Company attracted subscriptions totaling $100 billion! (Paralleling the Industrial and Commercial Bank of China, China Life is now the world’s second largest insurance company by market cap.) The secondary market in equity warrants is the largest in the world even when there are just 20 issues, and the market did not even exist 18 months back. The bond market is also getting sophisticated: there was an issue of dollar-denominated Chinese Residential Mortgage Backed Securities in Singapore and Hong Kong a few months back.

The enthusiasm of the investor for equities is understandable given the extremely low interest rates (banks pay just 2 per cent to depositors), the fast growing economy and the fact that the index has gone up 130 per cent last year — ironically, it had fallen sharply over the previous four years despite the economic boom. The recently reconstituted regulatory regime is cleaning up the secondary market practices and making it more transparent. Earlier, given the ban on domestic IPOs, several Chinese companies listed only in Hong Kong. After the ban was lifted, major issues are now being floated in both Hong Kong and the Shanghai/Shenzen stock markets. IPOs by Chinese companies on global market totalled $45 billion in 2006.

Another major reform has been the abolition of the “non-tradable” category of shares — these were actually state holdings, and comprised two-thirds of the total share capital of the listed companies. While such non-tradability no longer exists, it is not clear whether the shares would actually come in the market, as part of the privatisation of the state sector. Remarkably, the rise in equity prices last year took place in the face of the possibility of the huge amount of hitherto non-traded stock coming in the market. Including the capitalisation of the companies listed only in Hong Kong, the market capitalisation of Chinese-listed companies now comes to around $1,600 billion. Mergers and acquisitions in China (including Hong Kong) totalled $350 billion last year. Like the economy and banking, Chinese capital market activity has overtaken its Indian counterpart in many areas.

The mutual fund sector is also growing rapidly. While money market funds have dropped in assets as the stock market boomed, the aggregate mutual fund assets are in excess of $100 billion. India’s, on the other hand, are about $80 billion. As part of the financial market reform, pension fund management regulations have been introduced. These envisage a small proportion of the funds to be invested in the stock market. The insurance sector has also been reformed with foreign companies allowed a majority holding in both life and general insurance companies. Clearly, the Chinese are well ahead of us in some of the areas which we keep debating.

While, in general, China continues to welcome foreign direct investments without too many reservations, including in the retail sector, some backlash is developing in respect of the takeover of existing domestic companies by foreigners. It took a Citibank-led consortium one year to get approvals to take over a relatively small Chinese bank. Carlyle, the private equity fund, has also faced problems and opposition to a takeover bid. On this issue as well, the contrast with us is interesting. We seem to be much more wary of fresh investment proposals, than takeovers or other private equity investments!

Meanwhile, commercial banks’ reserve requirements have been increased to 9.5 per cent to cool the economy and the yuan continues its gradual appreciation against the dollar. A Shanghai Interbank Offered Rate (SHIBOR) market in the domestic currency has started in Shanghai.


Come here for the source of this report.

ICBC Overtakes HSBC as Largest Non-U.S. Bank by Value

The Bloomberg news reported the big jump of the ICBC's market value after its IPO in Hong Kong and Shanghai stock market on Oct. 26, 2006.


Shares of Industrial & Commercial Bank, known as ICBC, surged by the daily limit of 9.9 percent to close at 5.21 yuan in Shanghai, valuing the firm at $214.2 billion. HSBC had a market capitalization of 106.5 billion pounds ($208.4 billion) at the close of trading in London on Dec. 22, behind Citigroup Inc., the largest financial firm, at $268 billion and Bank of America Corp. at $239.6 billion.

State-controlled ICBC's shares have soared 67 percent on the domestic stock exchange since its debut on Oct. 26, as investors bet a customer base bigger than Russia's population will drive profit growth in the world's fastest-growing major economy. ICBC has 153 million customers, 10 million more than the people who live in Russia.

A four-year investment boom has powered annual economic expansion of 10 percent, double the global average, pushing China past the U.K. to become the world's fourth-largest economy. ICBC, Bank of China Ltd., China Construction Bank Corp., Bank of Communications Ltd, and China Merchants Bank Co. have raised more than $47 billion from share sales since June 2005.

Bank of China

Shares of Bank of China Ltd. gained 7.5 percent to 4.30 yuan in Shanghai, catapulting the bank to the world's sixth-largest lender with a market capitalization of $135.9 billion. It overtook Mitsubishi UFJ Financial Group Inc.

UBS AG expects the seven publicly traded Chinese banks it covers to post average earnings growth, when weighted for size, of 27 percent next year, according to a Nov. 24 report. The gains will be driven by average 14 percent loan growth and an improvement in interest margins.

Beijing-based ICBC expects net income to rise 26 percent in 2006 to 47.2 billion yuan, based on international accounting standards. Bad loans at the bank were 4.1 percent of total credits as of June, down from a high of 34 percent in 2000.

How Valuable Are Indian and Chinese Banks

Many are talking about Indian banks are superior to Chinese ones. But the facts are so different with many assume. For more details, please go to Rediff.com, an Indian web portal.

ICBC (The Industrial and Commercial Bank of China) is planning to float 24 per cent of its enlarged share capital and could even sell more shares by exercising the greenshoe option. After the IPO, its valuation will roughly be about $87 billion. This is almost one and half times of the collective market capitalisation of all listed Indian banks - for the 37 listed Indian banks, this is about $ 62.76 billion (Rs 2,86,859 crore).

China's second-biggest lender, Bank of China, raised $13.2 billion in June by offering 10.5 per cent of its capital to the public and the country's third largest bank, China Construction Bank, raised $9.2 billion last October. Bank of China's market capitalisation is now around $105 billion and that of China Construction Bank $ 99 billion.

In terms of market capitalisation, ICBC will still be far behind Citigroup ($140 billion), but it is a giant vis-�-vis Indian banks. ICICI Bank tops the market capitalisation chart with $ 13.59 billion (Rs 62,177 crore), followed by the State Bank of India with $11.89 billion (Rs 54,380 crore) and HDFC Bank with $6.29 billion (Rs 28,774 crore). None of the other listed Indian banks has over $5 billion worth of market capitalisation. Punjab National Bank, the fourth bank when it comes to market capitalisation, is worth just $3.62 billion.Canara Bank is worth just $2.52 billion.

Indian banks do not have the scale. ICBC has total assets of over $ 812 billion, close to the size of India's GDP! Despite such large assets, the large Chinese banks have recorded annual growth rates of over 10 per cent in total assets over the past three to four years.

State Bank of India, which accounts for almost one-fifth of total banking assets in India, however, has an asset base of only $84 billion.

International investors believe the potential is huge and things can only get better in China. In the case of India, it is a story of missed opportunities, an interfering government-owner and a micro-managing banking regulator.

Indian Stocks Too Costly to Sustain Rebound, Strategists Say

Source

June 19 (Bloomberg) -- Indian stocks may be too expensive even after falling from records set last month, and many of the region's analysts say the market will fail to extend the biggest two-day rally in two years.

Strategists at Deutsche Securities Asia Ltd., Merrill Lynch Asia Pacific Ltd., JPMorgan Chase & Co. and Nomura International (Hong Kong) Ltd. are among those who see share prices as too high relative to other emerging markets.

``I don't think that this market has finished falling,'' said Spencer White, chief equity strategist at Merrill in Hong Kong. ``I simply don't see enough factors to convince me that the 25 percent decline we have had in the last month really is the end.'' White has a ``market-weight'' rating on India, suggesting that investors' stakes track regional indexes.

The Bombay Stock Exchange Sensitive Index, or Sensex, has tumbled 22 percent from its peak on May 10, the biggest decline among Asian benchmarks. All 30 stocks in the index have fallen, led by a 36 percent plunge in Hindalco Industries Ltd., India's biggest non-ferrous metals maker.

Last week, the Sensex surged 11 percent in the final two trading days as concern eased that rising interest rates around the world will limit economic growth. The rally was the biggest since May 2004 and resulted in a 0.8 percent gain for the week, the index's first in six weeks, to 9884.51. The Morgan Stanley Capital International Asia-Pacific Index added 0.7 percent.

MSCI's Emerging Markets Index also snapped a five-week losing streak, adding 0.1 percent. The global index has fallen 20 percent from a record, reached May 8, on concern that higher rates will reduce demand for riskier assets. During that time, the Sensex has lost 21 percent.

10 Percent Tumble

Indian stocks tumbled 10 percent on May 22, sparking one- hour trading halts by exchanges. Prices rebounded after Finance Minister Palaniappan Chidambaram said banks would help investors meet calls for cash and urged individuals to stay in the market.

Earlier this month, stocks fell after the Reserve Bank of India unexpectedly increased the rate at which it removes funds from the banking system by a quarter point, to 5.75 percent. The central bank's June 8 decision was in keeping with similar moves in the euro region, South Africa, South Korea and elsewhere.

``We are still some way away from stability,'' said Jayesh Shroff, who helps manage about $1.9 billion of Indian stocks at SBI Funds Management Ltd. in Mumbai.

The Sensex is valued at 15.2 times estimated earnings for the current year, down from a high of 20.5 times on May 10. The price-earnings ratio is still above the MSCI emerging-markets index's 12.2 times.

More Rate Increases?

``It is early to say that a lot of value is emerging,'' said Adrian Mowat, JPMorgan's regional equity strategist, based in Hong Kong. ``I don't plan on changing my `underweight' view on Indian stocks yet.''

Local mutual funds were net sellers of stock from June 2 to June 14, according to data from the Securities & Exchange Board of India, the market's regulator. The nine-day stretch, with as much as $475.4 million in net sales, was the longest this year.

Overseas investors have sold about $2.4 billion more stock than they bought since May 11, almost half their net $5 billion of purchases for the year through May 10, the data showed.

Economists see India's central bank raising its key interest rate next month for the third time this year as the economy's expansion and higher oil prices spur inflation. The Reserve Bank will increase the rate at a July 25 meeting by a quarter point, to 6 percent, according to 10 of 11 analysts surveyed by Bloomberg News after this month's move.

Doubting 'Growth Story'

``We see more rate increases in India as the central bank tries to tackle rising inflation,'' said Sean Darby, head of Asian strategy at Nomura. Darby estimates the Sensex's fair value at 7,000, or 29 percent below last week's close.

Higher rates may impede economic expansion. Increases in gross domestic product averaged 8 percent in the three years ended March 31, making India the second-fastest growing major economy after China. The government is counting on rising farm and industrial production to accelerate the pace to as much as 10 percent a year over the next decade.

``I don't believe in the growth story,'' said Mark Jolley, Deutsche Bank AG's Asian strategist, based in Hong Kong. ``I don't believe the government can make the market grow without causing inflation.'' Jolley also rates India ``underweight.''

JF Asset Management Ltd., on the other hand, sees India as a ``a very good long-term growth story,'' said Grace Tam, a Hong Kong-based investment services associate for the firm.

Seeing the Bottom

``We have become even more bullish because the valuation has become even more reasonable,'' Tam said. JF Asset oversees $81 billion in Asia and favors stocks such as Associated Cement Cos., India's biggest cement maker by capacity.

Hayes Miller, a manager of global equities at Baring Asset Management Inc. in Boston, said emerging-market valuations are low relative to developed markets, helping countries such as India. MSCI's emerging-market index is valued at 12.2 times estimated earnings, below the 14.4 for the MSCI World Index.

``We aren't too far from the bottom,'' said Miller, whose firm oversees $37 billion.

Still, some investors share the concern among strategists. They said the Sensex will need to fall further before they are tempted to buy.

``India just doesn't make sense for us at the moment,'' said Angelo Corbetta, who oversees $4.3 billion at Pioneer Investment Management Ltd. in Singapore. ``The 8,000 level for the Sensex is a good entry point.''

India witnesses over $1.2 b foreign funds outflow

Any bubble in India stock market? What's risks for Indian economy?
1. High budget deficit. It is almost 80% of its GDP and still growing fast.
2. High trade deficit. Almost $40 billion in 2005. It is huge comaring with about $100 billion export.
3. High oil price
4. Inequal development.
5. Highly depends on FII for investment.
6. Overvalued currency.

Mumbai: India and Korea bore the major brunt of the recent sell-off by foreign funds in emerging markets. It is estimated that foreign funds pulled out about $5 billion last week from emerging markets with India alone witnessing an outflow of over $1.2 billion.

According to data filed with the Securities and Exchange Board of India, the total sell-off by foreign funds in the last eight trading sessions accounted for $2.5 billion (Rs 11,131 crore).

Source