Indian shares rose more than 17 percent in 2010, to be among the best-performing major Asian markets this year, after closing 0.6 percent higher on Friday, with most investors expecting the rally to continue. Record foreign fund inflows of $28.7 billion powered the annual gains in the main index, which rose to its highest close in about seven weeks on the last day of the year, and market participants were optimistic a rapidly growing economy would continue to attract money into local equities.
But, key risks for the markets in 2011 are inflationary pressures that may lead to the central bank raising rates aggressively and continued political stalemate that could push policymaking into limbo. "There are challenges going ahead and 2011 definitely won't be a smooth ride for the domestic and global economy, but we (India) are better placed," said Jayesh Shroff, a fund manager at SBI Mutual Fund, which manages about $9 billion of funds.
"Globally, we continue to face the challenges of sovereign defaults, especially in Europe. As long as the global economy remains stable, there are enough funds to be deployed in capital markets." The main 30-share BSE index ended up 0.59 percent or 120.02 points at 20,509.09 on Friday, with 22 components closing in the green. The 50-share NSE index closed 0.54 percent higher at 6,134.50 points on Friday, rising 17.9 percent in 2010.
The index added about 5 percent in December, its first monthly rise since September. It was its eighth straight quarterly rise, after it added 2.2 percent in the December quarter. In the year to December 29, which is the latest available data, foreign institutional investors were net buyers of $28.7 billion of Indian equities, compared with $17.5 billion pumped in 2009.
"Global investors' exposure to emerging markets is lower (than developed markets), but Brazil, Russia and India are likely to attract larger flows within this," said Deven Choksey, managing director at K.R. Choksey Shares & Securities. "With around 9 percent of GDP growth for several years to come, I think the Indian market will continue to attract strong foreign inflows," he said.
The main stock index rose 17.4 percent in 2010, after surging 81 percent in 2009. It is seen rising to 23,350 by end-2011, which would be a 14-percent gain from current level, a Reuters poll showed this month. Indian shares performed better than the MSCI all-country world stock index in 2010 and were in line with the gains in the MSCI Emerging Markets Index.
In Asia, India outperformed peers such as Hong Kong, China and Japan, but lagged Indonesia and Korea. India's No 2 motorcycle maker Bajaj Auto surged 75 percent in 2010 to be the top gainer in the benchmark stock index, followed by car and commercial vehicles maker Tata Motors, which gained 65 percent on improving finances.
Metals and telecoms stocks lagged the broader market. The metal sector index gained just 1.1 percent. Top mobile carrier Bharti Airtel rose 9 percent in 2010, while No 2 Reliance Communications fell 16 percent in the year.