Are Indian Stocks Getting Too Far Ahead of the Pack?

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Includes: HDB, IBN, INP, VEDL
by: Himanshu Pandya

Indian stocks continued their strong run last week as the BSE Sensex touched an all-time high of 17,361.50. Sensex, Bombay Stock Exchange’s benchmark index which consists of 30 companies, is up about 25% year-to-date.

Not all US listed Indian stocks have benefited by the strong run in the Indian markets. If you look at the chart in the previous article you will see that the strong performers have been the Indian Banks, HDFC Bank (NYSE:HDB) and ICICI Bank (NYSE:IBN) and the Indian ETF (NYSEARCA:INP). The newly listed Sterlite (SLT) has also performed well. However, IT, Outsourcing and Internet stocks have all under-performed.

But is the Indian Market getting ahead of itself?

Linked is a statement issued by Indian Finance Minister P. Chidambaram on Friday, as he told investors “to do their homework” before investing in the domestic share market that has raced to new highs on the back of overseas fund flows. This after the BSE Sensex set new highs on eight successive trading days. So far, overseas funds have invested $11.63 billion dollars in Indian equities this year, compared $4.86 billion dollars they pumped in during the same period last year.

Optimism is running high in India and further gains are expected. Why not? The Indian Economy is in a great shape and continues to roll out amazing GDP growth rates. Indian Banks have almost no exposure to the sub-prime mortgage mess and their stock prices reflect that. However, the strong rupee is a concern

Indian markets will react based on how the global market react in the next coming weeks and months. Even if the global markets remains strong, I think there might still be a room for a small correction before it makes new highs. But any downside in the US (which I am expecting for a while now but just doesn’t seem to happen) could cause a major breakdown in India. We are already aware that Indian markets react strongly both ways and with such a long stretch of upside there might be a little downside coming soon.