NSE shines in 2007, offers highest returns

MUMBAI: NSE's nifty, the index which more often remains behind the limelight compared to BSE's sensex, is a world-beater in true sense.

Over the last six months nifty has delivered the highest returns compared to its global peers, including those from China, Hong Kong and South Korea. During this period the nifty has risen by 42.6%, beating Shanghai Composite index, which had witnessed a sharp surge in the first half of the year, and Hang Seng index. And the sensex, BSE's 30-share benchmark index, is a close second, with a 40.09% rise.

While nifty went from 4,264 on June 27 to 6,081 now, the sensex rallied from 14,431 to 20,217 during the same period.

Market players say there are a number of reasons why the Indian stocks are moving up so quickly. One of the primary reasons for the market rally was a strong inflow of funds from foreign institutional investors (FIIs). The FIIs have pumped in almost $17 billion so far this year, with record inflows in the months of July and October.

"India as an emerging market story offers very good growth stocks. These counters attract foreign institutional investors," said Seshadri Bharatan, director, stock broking, Dawnay Day AV Securities. In comparison, the Dow Jones index in the US has moved just 0.9% higher in the last six months.

Many of the developed markets, among them FTSE in London and S&P in the US, have seen negative or flat growth in the same period, as the subprime lending crises saw them go through a credit crunch. The central banks in these countries cut key interest rates to increase liquidity, and a lot of this money found its way to high-growth emerging markets during the second half of the year.

The rupee has also appreciated the most against the dollar, boosting the fortunes of many companies, market players said. Yet another factor driving the markets is high earnings growth of Indian companies. "Earnings growth of the sensex for the second quarter was approximately 26.7%, and with encouraging advance tax numbers coming in, the earnings growth is expected to be around 25% for the third quarter as well," according to Gopal Agrawal, fund manager, equity, Mirae Asset Management.

China's Shanghai Composite index, on the other hand, was racing ahead in the first half of the year but saw an almost 15% correction in November. The last six months have seen the Chinese juggernaut slow down a bit, growing at 30.16%. "The Chinese government had increased regulatory charges and interest rates in a bid to cool off its markets," Bharatan said.

In India, the retail investor has also pumped a larger portion of household savings into the equity markets. The percentage of total financial savings of the household sector that found its way into shares and debentures was 6.3% in 2006-07 from 4.9% a year earlier, according to data released by RBI in October.

While this amount is not comparable to the kind of inflow from other sources and would not have a significant impact on the market rally, it does highlight the fact that a more retail investors are benefiting greatly from the India growth story.