The year 2006 was a good one for the Indian investors as the benchmarks - the BSE Sensex and the NSE's S&P CNX Nifty - generated returns of 47 per cent and 41 per cent respectively. Even the performance of broader indices - BSE-500 with 39 per cent, the BSE Midcap (31 per cent) and the BSE Smallcap (16 per cent) - should be satisfying to the general investment class. This is the fifth straight year of gains for the Indian markets.
Emerging markets
One of the major reasons for the Indian bourses to show robust performance was the strong inflow from foreign investors. In fact, it was a record inflow in 2006 for emerging markets (including India). According to EPFR, an emerging market fund activity tracking firm, about $22.4 billion entered the emerging markets in 2006 with China attracting half of the amount. Inflows are around nine per cent higher than the record inflow of $20.3 billion during the whole of 2005.
India losing sheen?
Despite emerging markets attracting strong inflows, India seemed to be out of favour with the global investors, at least for now, as overall foreign institutional investments slipped in 2006. According to SEBI data, FIIs were net investors to the tune of Rs 36,539 crore in 2006 - much below 2005 level of Rs 47,181.20 crore - a drop of 22.5 per cent, as they indulged in profit booking at higher levels. In dollar terms, FIIs were net investors of $7.993 billion against $10.701 billion in 2005, a decline of 25 per cent.
However, the total number of FIIs operating in India crossed the 1,000-mark for the first time and has gone up to 1,035.
Consolidation seen
So what is in store for 2007? General view among investment circles is that 2007 may not be as fabulous as 2005 or 2006. A majority of them say that the market has entered consolidation phase. Despite recent slowing down in FII flows, India's macro picture is still intact. Strong economic growth remains the key trigger, with India's GDP for the first half of the current fiscal ended September hitting 9.1 per cent. The RBI has forecast full-year growth of 8 per cent. Corporate earnings have been growing at 20-23 per cent for the last two years. Most analysts are hopeful that the trend may continue for the Indian Inc in 2007 too.
The stock market was expected to remain stable despite concerns that the RBI would raise interest rates early next year with inflation rate nearing 5.5-mark against the Government's targeted level of below five per cent.
This week, the Indian bourses may not be an action-packed one. With overseas funds in no hurry to commit fresh investments and are in profit-booking mood, listless trade may mark the beginning of the New Year.
Corporates are scheduled to announce their Q3 performance soon; Infosys and HDFC Bank would report their earnings on January 11. Market may see fresh commitments from big funds only after seeing the initial trend (Q3 numbers) and more importantly the outlook they are going to present for the next quarter as well as next fiscal.