The Hindu Business Line : `Indian stock markets attractive for foreign investors'

INDIAN stock markets are still attractive for foreign investors, according to Mr Alan Jacobs, Senior International Economist and Strategist, AMP Capital, Australia.

In a presentation to journalists of The Hindu group, Mr Jacobs said Indian companies were "well run." Return on equity in India was higher than in countries such as the US, China and Japan, he said, adding that Indian corporate earnings were rising faster than earnings of companies in other countries ever since the reforms process was set in motion.

Besides, the present stock market rally was qualitatively better than the boom of 2000, because, this time around, stock prices tracked corporate earnings closely.

Mr Jacobs projected (on the basis of internal studies in AMP) that the Indian economy would grow by 6.6 per cent in 2005, "with the potential to grow further." But the country, he said, faced two risks: inflation and government backtracking on reforms. He said liquidity overhang and rising oil prices could lead to inflation.

Asked if fiscal deficit was a major problem, Mr Jacobs said it was not. As long as the deficit was less than the nominal GDP growth rate, the situation was not alarming, he said. It was important that India did not have any external debt. Internal debt only meant that "you are borrowing from your grandchildren," he added.

Stressing that it was important for the country to attract more foreign direct investments, he said it needed to build better infrastructure. He also added that the economic outlook for India depended much upon whether the government stayed on the reforms course.

On the global economy, Mr Jacobs said the world would see a recession in 2005, but 2006 would be better.

Over-capacity in China was a potential problem, he said. In the previous years, China had invested too much — about half its GDP — in creating capacities.

How it managed the slowdown of the current year would have a bearing on economies such as India. China could be "exporting" problems arising out of over-capacity, he cautioned.

Oil prices, he noted, would depend on the ability of oil producing countries to hold on to production cuts.

He said the oil prices were high because there had been not enough investments in the oil sector for several years. Asked for a comment on Russia's economic performance, he said, "If oil prices are a bubble, Russian economy is a bubble."

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