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Booming Economy, Foreign Enthusiasm Push Indian Stocks to Record High

A day after Bombay's Sensex market index hit 10,000, headlines in Indian newspapers screamed out the news.

Analysts say the milestone reflects investor confidence in the Indian economy, which is growing at about eight percent a year and showing no signs of slowing down.

Rajesh Jain of Pranav Securities in Bombay credits healthy corporate earnings and record investment by foreign funds with catapulting the market to the new high.

"Tremendous corporate fundamentals, great micro-economics and great money inflows - all these have been driving the markets, and I think that remains," said Jain.

The stock markets grew by nearly 40 percent last year, and the surge has cut across a host of sectors, from cement to steel and banking to housing.

Foreign investors pumped nearly $11 billion into the equity markets, and their enthusiasm encouraged Indians to follow suit. Domestic mutual funds have emerged as big players.

The buying spree is continuing: foreign investment funds have put nearly $1 billion into Indian stocks since the start of this year.

Andrew Holland, vice president at DSP Merrill Lynch, says India remains firmly on the radar of foreign investors, who continue to scout for opportunities in an economy and a stock market that have blossomed in recent years.

"It [the Indian market] is the second largest in terms of market capitalization, so it cannot be ignored any more, and in terms of GDP growth, it is the second highest behind China, and in terms of earnings-per-share growth, it is the highest in Asia," he said. "So fundamentally, India remains at the top of the league."

Most analysts predict that the recent heady growth will slow down somewhat, and that periodic corrections can be expected in the coming year.

But investors say the markets could get a further boost if the government continues to push ahead with pro-reform policies in the budget expected to be unveiled at the end of this month.