The Rupee has been surging against the dollar again (it’s approaching 39:1; see an earlier discussion here), and according to the New York Times, the instability in the U.S. market in recent months has led investors to pour money into Indian corporations:
Fueled in part by overseas investors seeking refuge from America’s subprime mortgage mess, share prices in India’s markets have outpaced other Asian markets in recent weeks. The Bombay Stock Exchange’s Sensex index set records on 10 of the last 11 days, before closing slightly lower on Thursday at 17,777.14.
The Sensex is up 14.6 percent since Sept. 17. That follows months of somewhat slower gains — the index is up 28.9 percent so far this year, according to Bloomberg Data, and up 102 percent (0r more than double) over the past 24 months.
The real estate company DLF, for example, which had a $2.3 billion initial public offering in July, now has market capital of more than $37 billion — making it roughly the size of Marriott International and Hilton Hotels combined. On Thursday, the company said it would consider overseas acquisitions and offshore fund-raising at its next board meeting.
Reliance Industries, the largest publicly traded company in India, reached a market cap of more than $85 billion this week, up from $6.5 billion in January 2003. Reliance, an oil, chemical and manufacturing company, is now about double the size of Dow Chemical. The market cap of Bharti Airtel, a telecommunications giant, nearly reached $46 billion this week, making it triple the size of Qwest and larger than Telecom Italia. (link)
Those are undeniably impressive gains — and it’s interesting to see companies most Americans have never heard of reaching “blue chip” valuation levels (for more on market capitalization, see Wikipedia).
But — am I right to be worried about a possible bubble?
James Surowiecki writes incisively about some of the reasons for the American complacency about this issue in last week’s New Yorker, and the potential dangers. “Americans are able to buy far more stuff with their flimsy currency than one would expect. The vice, if there is one, may be that the relative painlessness of the dollar’s decline has made it easier to ignore the reasons for it, like our colossal government debt and the trillions of dollars we’re going to have to spend on Medicare and Social Security for retiring baby boomers. We know that these things matter, but it’s hard to get worried about them when foreign-made DVD players cost twenty-nine dollars.”