Page last updated at 00:54 GMT, Tuesday, 30 October 2007

Foreign money still key to India's stock success

Karishma Vaswani
By Karishma Vaswani
Business Correspondent, BBC News, Mumbai

A sign marks the sensex hitting 20,000 points
The Sensex hitting 20,000 points got a lot of attention in Mumbai

He has sold chewing tobacco at his cornershop in Mumbai for the last decade and business for 36-year-old Rajesh Pathak is brisk.

But as one of millions of migrants who come to this big city to find fame and fortune, his journey was not without its troubles.

He almost lost his store because of financial difficulties a few years ago.

However when faced with the option of putting his shop up as collateral for a loan for his younger sister's wedding, or taking a risk and investing his life savings in the Indian stock market, he took a gamble and went with his faith in Indian shares.

It was a gamble that paid off.

"Six years ago I put in $200 in the Indian stock market", he says at his humble corner shop.

"I didn't know the first thing about investing in shares but there were two customers of mine who used to come here to buy chewing tobacco every few days or so.

"They were always so well turned out with flashy watches and phones so I asked them - what has made you so rich?

"They said it was through the Bombay Stock Exchange, and I thought to myself, why can't I see the same success for myself?"

Right now the Indian investor makes up just a fraction of investment activity on the Indian stock market,
Sriram Venkatsubramaniam
Centrum Investments

Foreign-led rally

By all accounts, Mr Pathak has seen extraordinary success.

The money he invested has helped buy two homes, a few motorcycles and contributed towards his sister's marriage.

He also managed to keep his little shop - but his day is mainly spent looking at the performance of his shares on the Bombay Stock Exchange.

It is this kind of success that is drawing so many Indian investors to the stock market.

Sensex graph

On any given day you just have to take a stroll down Dalal Street - India's Wall Street - and you'll see dozens of upturned faces outside the Bombay Stock Exchange, investors looking up at the big television screen beaming their fortunes down at them.

This week is broadcast news that the main share market, the sensex, had hit 20,000 points for the first time.

Millions of Indian investors have done well because of the 40% jump in value in Indian shares in the last year.

But it is foreign investors who have really led the rally in Indian shares.

They have pumped in billions of dollars here in the last year because of their faith in the Indian economy.

So when news first came out that foreign investment could be curbed in the future - it was no surprise that the stock market fell sharply.

Trading was halted on the exchange for an hour as investors scrambled to make sense of the new rules being proposed for foreign investors.

More investors

It was tense times for investors in Mumbai. Overseas investors pulled billions of dollars out of India worried about their status.

"I lost my shirt this week," said Vijay Pathi, a 26-year-old retail investor.

Watching the value of his shares slump on the big screens outside the Bombay Stock Exchange, he kept nervously glancing up at the boards as he spoke, hoping for his luck - and his shares - to change direction.

Stockbrokers in Mumbai
There has been no shortage of work for stockbrokers in Mumbai.

"I put my money in the markets here because foreigners believed in it so much. If they all pull their money out, what happens to us?"

The Bombay Stock Exchange lost almost 10% in one day that week but since then calm has returned to the markets and the confusion over rules for foreign investors looking to put money into Indian shares has been cleared up.

What the sell-off really indicated was just how dependent the Bombay Stock Exchange is on such outside investment - which accounts for some 40% of the Indian market and have largely been responsible for driving shares up here higher.

But some say the next surge in Indian shares should come from investors at home.

"Right now the Indian investor makes up just a fraction of investment activity on the Indian stock market," said Sriram Venkatsubramaniam a director at Centrum Investments in Mumbai.

"But we're going to see more and more people join in the equity markets here in the future.

"We've just scratched the surface of Indian money in Indian shares and then the markets here will be driven by local interest - not by the whims and fancies of foreign money."

Until that happens however, the success of the Bombay Stock Exchange will still very much ride on how welcome foreign investors are feeling in Indian markets.


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