Monday, May 18, 2009

Mumbai Stocks Fueled by Post-Election Optimism

In a resounding vote of confidence for Prime Minister Manmohan Singh's continuing leadership, Indian and international investors are celebrating with 17% jump in the 30-share BSE index, or 2,110.79 points, to 14,284.21 points, for its highest close since Sept. 11. Trade was finally halted for Monday before noon.

Here are the key headlines from Reuters about strong and positive investor reaction in Mumbai:

* Stocks jump 17 pct, biggest rise in 17 years

* Circuit breakers halt trade twice; markets closed early

* Rupee up 9 percent from low in early March

* Morgan Stanley raises stock, growth projections

* Bond yields drop, stake sales seen to fund deficit

Next door in Pakistan, the investor reaction to news of the day was muted and the KSE-100 remained essentially flat. Karachi Stock Exchange (KSE) was up in the morning but then the sellers came in on Monday and the benchmark KSE-100 Index closed 5 points down to 7,172.

Amidst major counterinsurgency operations in and around Swat Valley and growing refugee crisis, there are signs of optimism by investors and bond holders in Pakistan's economy. The KSE-100, Karachi's stock index, is up 27 percent this year, compared with a 12 percent gain in MSCI’s emerging-market stock index of 26 emerging economies, including Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, Turkey and Venezuela. The Pakistani rupee, which declined 22 percent against the dollar last year, the second-worst performer in Asia, fell 1.8 percent this year.

Currently, KSE-100 companies are trading at a forward price-earnings multiple of about 5 versus Mumbai Sensex PE ratio of over 10. So a lot of the worst case pessimism is already reflected in the share prices of some of the high-quality blue-chip companies trading at Karachi stock exchange. Could it get worse? It's possible but not likely. There appears to be a lot more upside than downside at this time. Between 2001 and 2007, as Western governments fretted about Pakistan's nuclear weapons falling into the hands of militants, the KSE-100 rose risen more than 10-fold. It is capable of repeating the same performance from the lows of this year.

According to Pakistaniat website, Pakistan’s trade deficit narrowed by almost 50% in March, as imports declined faster than exports. In the same month, worker remittances were a record high at US$743 million an increase of 23% over last year. While Japan’s exports plummeted by 50%, China’s by 26% and India’s by 33%, Pakistan’s exports were down by 25%. Even though, the competitive peer group is formidable, Pakistan is the best performer.

On the corporate profitability front, during the worst global down turn in a century, Pakistan’s corporate profitability of listed companies declined by a mere 3% in aggregate in the 3rd quarter of 2009.

At the end of calender year 2008, remittances topped 7 billion dollars, an increase of 17 per cent year over year, led by higher remittances from oil-rich GCC countries, which grew by 30 per cent year on year. Similarly, FDI inflows jumped 100 per cent year on year to 708 million dollars in December, 2008, as the telecom, oil and gas, and financial-services sectors continued to attract foreign inventors, according a report in the Nation newspaper.

Pakistani military's robust response to the rising militancy appears to be backed by a significant majority of the people. If the Pakistani political leadership can deal with its fall-out, such as the humanitarian crisis, and sustain the popular support for the ongoing military action, and the government executes a rational set of economic policies, it is quite reasonable to expect an economic rebound within a year.

Given strong underlying growth dynamics in South Asia, the negative feedback effects of the global financial crisis should be temporary as well. A relatively rapid rebound can be expected in 2010, with a projected revival of GDP growth to 7 per cent, spurring job growth again.

Related Links:

Can Congress Deliver in India?

Is Pakistani Economy Poised For Rebound?

Is Indian Democracy Overrated?

Mumbai's Slumdog Millionaire

Can India Do a Lebanon in Pakistan?

Poor Sanitation in India

Stable, Peaceful, Prosperous India

No Toilet, No Seat in India

Poverty Tours in India, Brazil and South Africa

South Asia's War on Hunger Takes Back Seat

Grinding Poverty in Resurgent India

Pakistani Children's Plight

Poverty in Pakistan


Anonymous said...

Offcourse more than the capital market reacting positive, indian rupee appreicated more than one ruppe. At the current level one usd = 47.51 inr == 80.66 pkr talks the truth of the every nation. In fact indian currency will still appreicate purely on the strength of the macro economic factor of fiscal deficit. America total bailout cost is around 12.7 trillion usd which is almost equal to their gdp.

ON those comparision, the indian economy is much better than american currency and slowly the currency will appreicate.

Anonymous said...

For a nation of around 17.62 crore , Pakistan has an army of 700,000. For a population of 117 Cr India has an army size of 1 Million.

gdp defence
india 3267 81.675
pakistan 452.7 13.581

Problem is that it wants to match the defense with an economy which is seven time bigger than it. It is like india dreaming to spend on defennce like usa.

Anonymous said...

Further, as per data contained in link ( one can see that more than 65-70% of the Defence spend is towards Salaries, Pensions and not on weapon accumulation.

Hence the money circulates in the economy and not going to other economies and kickback to politicans.

Riaz Haq said...

Here's an excerpt from a report by an Indian analysts C. Rammanohar Reddy:

"It appears that in larger countries, defence expenditure as a proportion of GDP is generally lower than in the smaller countries. Thus, China, India, the U.S. and even Russia have lower defence-GDP levels than Pakistan, Israel, Turkey and Saudi Arabia, although it is difficult to assert that the first group of countries shows a significantly lower level of militarisation than the second group. One can speculate that there is always a 'minimum' level of military infrastructure that all countries have to establish, which is reflected in smaller countries showing a higher defence-GDP ratio. However, even if this is true, one cannot deny that a high degree of militarisation is responsible for the astronomically high defence-GDP estimates for Israel and Saudi Arabia."Source:

Anonymous said...

Pls look at european countries and their defence expenses as percentage to gdp.

Further in case of india, the amount is spent for employment rather than procuring arms from outside which gives busines to other country.

Let us face it, pakistan has an obssession with india and has taken it to the dogs in the last 60 years. Unfortunately the same continues.

Riaz Haq said...

According to Times of India, India and China are among the world's top importers of arms, with Beijing accounting for almost 12 per cent of global weapons and military equipment import followed by New Delhi with eight per cent, according to a survey by a Stockholm-based think tank.

The report by Stockholm International Peace Research Institute (SIPRI) said bulk of the arms imported by China and India come from Russia with UK also emerging as a major arms supplier to New Delhi. However, SIPRI did not mention supply of arms by another major international weapons player, Israel.

According to SIPRI, even at 12 per cent share, deliveries and orders by China's People Liberation Army decreased significantly in 2007.

Russia supplied 45 per cent of China's arms import while it supplied 22 per cent India's import.

USA, Russia, Germany, France and the UK continue to be the largest arms suppliers accounting for almost 80 per cent of the international arms transfer between 2003-2007, says the report.

There is no mention of Pakistan among the large arms importers.

Since repeated US sanctions over the years, Pakistan has developed a robust domestic defense industry which supplies vast majority of its needs. Some of the components are imported from China for a number of joint projects such as JF-17 fighter.

In fact, Pakistan now exports hundreds of millions of dollars worth of arms and munitions to many countries. Sri Lanka, which just defeated the LTTE, used Pakistani arms in its big battles.