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Best growth story

The sharp plunge in the Bombay Stock Exchange on Monday and its slight recovery later should not shock long-term investors. The fundamentals of the $775 billion Indian economy are strong. The reason for the fall, which has been happening in the past consecutive days, shows the Indian economy, the fourth largest in Asia, is closely integrated with the world.

The drop of 10 per cent in Sensex had led to panic, but soon the market began to recover after a one-hour suspension of trade. The fact that globally equities had fallen showed that India was well integrated with the world markets. Traders had been worried over the rise in US interest rates. There was no respite to soaring oil prices, and foreign investors had begun a sell off.

The Indian market regulators were able to restore clam quickly. One reason for the current trigger could be the confusion caused by a government circular on new tax rates on Foreign Institution Investors. In a bid to assuage FII panic over the taxes, Finance Minister P Chidambaram clarified that there was absolutely no plan to introduce long-term capital gains tax on securities traded on the stock markets.

Chidambaram's explanation had been timely. It could also soothe the nerves of brokerages and investment banks pressured to make payment commitments. While Asian stocks continued their tumble fearing commodity prices drop and inflation, India had remained a relatively better place to stay on for the FIIs. They have invested $4.15 billion of overseas investors' money.

Sooner than later the FIIs would be returning to BSE with more cash after selling out $548 million in the past few days. Their attraction always will be India's economic strength. It is one of the best performing economies in the world. Futures and options dealers are also weighing the next step watching for global cues to return.

Chidambaram's assertion about India's robust economic health has been a further assurance for the market. Inflation is contained at below four per cent. There is over nine per cent growth in the manufacturing sector. The foreign exchange reserves are at comfortable levels and growing.

Another critical factor that could come as a boost to the market is the monsoon. It is expected to be plentiful this season. The forecast of the central bank is that the growth would be between 7.5 per cent and eight per cent. As Chidambaram has said, India's growth story continues to be a "real growth story" and it goes beyond the stock markets.

With an expected bounce in agriculture and booming services and manufacturing sector, the BSE would soon reflect these healthy signs. Even if markets elsewhere in the region show nervousness, there is no reason for panic on Dalal Street. The wise retail investor on Indian markets, as Chidambaram said, would stay invested. India is the best growth story that nobody can ignore.
Courtesy : Gulf Today




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