India's economy is 'back on track' for recovery

published 16 October 2009

India's Sensex Index notched up its biggest daily gain in seven weeks this Monday. It jumped 2% to a 14-month high, as optimism over India's recovery prospects grew. Industrial production rose by 10.4% year-on-year in August, the best figure in nearly two years. "There is palpable optimism here," said Vikas Bajaj in the International Herald Tribune.

What the commentators said

"After the big shock of last year, things are back on track," said Surjit Bhalla of Oxus Research & Developments. In response to the global crisis, the central bank cut interest rates and the government lowered taxes on consumer products and imports to prop up demand. Growth accelerated to 6.1% in the second quarter, and recent data has been positive. Car sales jumped an annual 13% in the five months to September and foreign direct investment is rising fast too.

All this offsets the effect of the driest monsoon season in over a decade on agricultural production, which accounts for 17% of GDP. "India's upswing will not be interrupted for long," said Capital Economics, which reckons growth could be back to 8% next year.

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But the stockmarket looks a bit overheated, said Shefali Anand in The Wall Street Journal. The trailing p/e has jumped to 20, a slight premium to emerging markets in general and up from 13 in the past year. India remains "vulnerable to the unpredictable mood of global investors". In 2009, foreign institutional investors have brought back the $12bn or so they fled with last year amid the global panic. But if risk appetite falls because the global recovery falters, they'll turn tail again.