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Wednesday, August 25, 1999 Published at 15:36 GMT 16:36 UK

World: South Asia

Record rally in Bombay market

Economic recovery has sent the Bombay Stock Exchange index soaring

Share prices on the Bombay Stock Exchange (BSE), India's main financial market, reached a record high during trading on Wednesday.

Bombay Correspondent Sanjeev Srivastava: Perception that elections would result in stable government
Minutes after opening, the stock market index hit 4,834 points, but it later fell back as investors sold to take profits.

Share prices on the BSE have risen by more than 50% in the last six months. The BBC's Bombay correspondent says investors are encouraged by predictions that next month's general election will usher in a period of stable government.

Bullish report

The immediate spark for the stock market rally was the release of the annual report on the country's economy, by the central bank.

[ image: Traders monitored share transactions throughout the day]
Traders monitored share transactions throughout the day
India's central bank - the Reserve Bank of India - projected an optimistic view of the economy, saying a recovery was underway after two years of slowdown.

It forecast that India's Gross Domestic Product would grow by 6.5%. Inflation is at a 17-year low and should remain at current levels of less than 2%, it said.

Analysts said confidence in India's macroeconomic fundamentals led to fresh speculative and retail buying, sending share prices surging.

"The degree of optimism that the economy is on the path to recovery is much higher," Rajesh Jain, the director of a brokerage house told Reuters.

Industrial growth

The confidence in the stock market is also attributed to India's improved industrial production.

[ image: Analyst Ashish Pitale: Urging caution]
Analyst Ashish Pitale: Urging caution
With the government's focus on developing India's infrastructure, demand for core products, such as cement and steel, has gone up.

Our correspondent says India's automobile industry is also showing signs of recovery, with demand for passenger vehicles increasing by 50%.

Political stability

Investors are also encouraged by recent opinion polls, which indicate a majority victory for India's ruling BJP coalition government.

But some analysts were cautious at the latest rally, saying it may not sustain if institutional investors continued to unload their shares on the volatile market.

"I think the new highs will be tested," said analyst Ashish Pitale.

"Probably during elections, you might have some kind of a reaction as people get cautious ... [and] postpone their investment decisions till a clearer picture emerges on the political front," he added.

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