By Anand Kumar
 

THE last week of September has turned out to be an amazing week for the Indian stock markets, when combined market capitalisation soared to record highs, catapulting several Indian businessmen to the top bracket in the world listing of the super-rich.

Two key indices in the stock markets – the Sensex on the Bombay Stock Exchange and the Nifty on the National Stock Exchange – shattered all previous records and registered life-time highs last week. The Sensex breached the 17,000-mark on Wednesday, recording the fastest 1,000-point surge in its history – it took a mere six trading sessions for the Sensex to touch the 17,000-mark from the 16,000 one.

The Nifty topped the 5,000 level on Thursday, taking just 52 days to reach the figure from the 4,500-mark, and 203 days from the 4,000 level. The Nifty, which took over 10 years to touch the 2,000-mark from the 1,000-mark (between 1994 and 2004), also saw the fastest surge in 1,000 points last week.

Key Indian stock indices have gained on the back of similar gains made by other indices around the world, including the US Dow Jones Industrial Index, the Nasdaq and the Hang Seng in Hong Kong. Foreign institutional investors (FIIs), who dumped nearly a billion dollars worth of shares in August following the sub-prime mortgage crisis in the US, have returned with a vengeance.

Last week alone saw FIIs pour in nearly $2 billion into the capital markets, taking their total for 2007 to nearly $11.5 billion. The US Federal Reserve’s decision to cut interest rates last week reversed the trend, boosting global stock markets.
Most of the top shares in both the Bombay Stock Exchange (30 top shares make up the Sensex) and the National Stock Exchange (where 50 scrips represent the Nifty) soared as FIIs went on a buying spree. Many of the top scrips recorded their life-time highs last week.

Market capitalisation has consequently soared to record levels. Last week alone total investor wealth – as measured in terms of market cap – sky-rocketed by a whopping Rs2 trillion in just six trading sessions. Total market capitalisation on the BSE breached the Rs50 trillion-mark (over $1.25 trillion) for the first time in history.

In August, market capitalisation had sunk to Rs42 trillion following the sub-prime crisis, but the past few days have seen a smart reversal in fortunes for investors. The 30 scrips of the Sensex account for nearly half the total market cap of Rs50 trillion.

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INTERESTINGLY, the surge in market cap has done wonders to the wealth of Indian billionaires. Mukesh Ambani, the chairman of Reliance Industries, and his estranged brother, Anil Ambani, who heads his own Anil Dhirubhai Ambani Group (ADAG) – the two brothers carved up their empire in 2005, following a bitter fight – now have combined wealth of about $80 billion, making the Ambanis the richest business family in the world – way above the reigning number one, Carlos Slim Helu of Mexico (net worth of $67 billion), and Bill Gates ($59 billion).
But since the Ambani brothers are no longer together, their individual standing is a few notches below the richest persons in the world. Mukesh Ambani, whose net worth topped the $50 billion-mark last week, is now the richest Indian – and the fourth richest person in the world.

Forbes, the US business magazine, in its latest ranking of America’s richest people published a fortnight ago, had ranked Bill Gates and Warren Buffet among the top-two, with net worth of $59 billion and $52 billion respectively. The Mexican tycoon’s net worth, which was estimated at $67 billion in March, has since fallen to $59 billion.

Laxmi Mittal, the UK-based NRI who controls ArcelorMittal, was the fifth richest person in the world in March with a net worth of $32 billion; his wealth has since shot up to $48.4 billion, but Mukesh Ambani has overtaken even him. The market capitalisation of Mukesh Ambani group companies has also topped the $100 billion-mark, the first for an Indian group. ArcelorMittal’s market cap has also breached the $100 billion-mark.

Other Indian billionaires whose net worth is in the $20 billion to $30 billion category include Anil Ambani ($29 billion), K.P. Singh of the DLF group ($28 billion), and Sunil Bharti Mittal ($21 billion) of Bharti Airtel. The brothers Ambani and Singh are now also trillionaires (in rupee terms), and Sunil Bharti Mittal is fast heading in that direction.

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THE Indian rupee also touched a nine-year-high against the US dollar last week, recording a high of 39.62 against the American currency on Thursday. It had dipped to a low of 41.36/37 in August following the sub-prime crisis, but in recent weeks has been strengthening against the US currency and a basket of other currencies as well.

Worried about the impact a strong rupee will have on Indian exports, the Reserve Bank of India, the country’s central bank, last week began intervening in the foreign currency market, buying up dollars. The RBI has bought nearly $40 billion in foreign currency this year, as it tries desperately to halt the gains made by the Indian currency.

Finance Minister P. Chidambaram, who was in the US last week for the ‘IncredibleIndia@60’ celebrations, organised by the government and the Confederation of Indian Industries, said the central bank would intervene in the markets in case of ‘disorderly movement’ of the exchange rate.

Expressing concerns about the sharp rise in the rupee, the minister said that this had taken exporters by surprise. The government had offered them a package by way of relief, and was willing to help them tide over the crisis, he said.
The Indian rupee has gained over 11.5 per cent in 2007, following the huge capital inflows, both by way of institutional investments and foreign direct investment.

Besides market intervention, the RBI has also been liberalising foreign exchange rules. Last week, for instance, it unveiled a series of measures encouraging Indians to invest abroad. Individuals can now invest up to $200,000 a year abroad to acquire shares or properties, up from the previous level of $100,000.

Indian companies are also now allowed to invest up to 400 per cent of their net worth in overseas joint ventures. The RBI has also raised the overseas investment ceiling for mutual funds from $4 billion to $5 billion, and hiked the external commercial borrowings (ECBs) repayment limit to $500 million from $400 million.

With foreign exchange reserves exceeding $230 billion, India is in a comfortable position and can afford to relax exchange controls rules.

These moves are clearly aimed at achieving full convertibility of the rupee on the capital account, but the RBI has been rather cautious in pursuing that goal. While several expert committees have been prodding the government to opt for capital account convertibility of the rupee, the RBI has been urging a more gradual and staggered approach.

A recent report by the Percy Mistry committee – on ways to convert Mumbai into an international financial centre – had suggested the rupee should be made fully convertible by the end of next year. The Tarapore Committee, set up by Prime Minister Manmohan Singh last year to draw a roadmap for full convertibility, had suggested a three-phase route, which would ensure full convertibility by the end of 2011.

But the RBI is seeking a gradual, 10-year span and has cautioned the government against taking any hasty decisions. Considering the tenuous position of the United Progressive Alliance government — and the stiff opposition to full convertibility by the Leftists — it is unlikely that the current government will opt for capital account convertibility by next year.