India’s Sensex stock market index jumped almost 14% in the second quarter of 2014 – the top performer of the world’s 40 biggest stock markets. It was also its best quarterly showing in five years.
Investors have driven stocks to record heights on hopes of bold structural reforms boosting sluggish GDP growth. The run-up makes stocks vulnerable. Valuations are looking pricey and the government’s budget on 10 July might struggle to meet inflated expectations.
But if the government does follow through on reforms, the resulting growth boost bodes well for raw materials, says Walter Molano of BCP Securities. India’s economy is roughly the same size as Brazil’s and Russia’s, but it has five times as many people. Yet, it consumes just 5% of global copper production, compared to China’s 50%.
If India’s economy is transformed, it “could put a great deal of stress on the global commodity market, pushing prices exponentially higher”.