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Are Stocks from India Worth Your While? (Part 1)

4 October 2007 - Features - Editor

Relative freedoms from bureaucratic and political interference are greater achievements of reform in India than the exceptionally high rates of economic growth (Harriss-White, 2003). The business potential of such a populous democracy, with abundant natural resources, could never have been in doubt, but actual developments left investors perplexed for decades.

Foreign institutions could not trade in stocks on domestic Exchanges until recent times, but the lackluster performances of most stocks would have left them largely unmoved in any case. A maze of regulations and administrative delays used to stall even the most transparently beneficial projects in the old public-sector dominated socialist era, and executives were never really free to execute their plans and strategies, especially if they ran foul of the plethora of regulators. Not all of this has gone away, but India has become a more workable market place than it used to be.

India continues to restrict world participation in its Exchanges, but many of the barriers, which prevented the Indian business community from buying and selling stocks, have melted away. NASDAQ even has an establishment in the country to promote Indian participation in its arena, and Advance Depository Receipts of the best Indian corporations are now listed on the New York Stock Exchange. Indian companies now also own controlling stocks of companies listed on the London Stock Exchange. Most of the world’s largest corporations have dynamic operations in India, and the country has acquired strategic importance for brands from a wide variety of sectors.

Shocks and Indian Stocks

Reform is underway and incomplete in India (Shah, and Thomas, 2003). Transparent and efficient trading in stocks have become norms, comparable on world standards, but some linkages between banking and securities, as well as the influences of conservative elements in the older Exchanges, have precipitated a series of crises in recent times. The banking sector remains substantially in government hands, and since stocks are used as collateral, it is possible for a federal government in power to deliver large shocks to the values of stocks, which are not always on economic or business performance grounds.

Are Stocks from India Worth Your While? (Part 2)

 


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