Breakingviews - How do India's markets spell relief? Chidambaram

Mon Oct 8, 2012 12:45pm IST

Palaniappan Chidambaram attends the inauguration ceremony of the National Security Guard (NSG) regional hub in Mumbai February 23, 2012. REUTERS/Danish Siddiqui/Files

Palaniappan Chidambaram attends the inauguration ceremony of the National Security Guard (NSG) regional hub in Mumbai February 23, 2012.

Credit: Reuters/Danish Siddiqui/Files

Related Topics

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

By Wayne Arnold

HONG KONG (Reuters Breakingviews) - How do India's investors spell relief? Palaniappan Chidambaram. Stocks have soared since word broke in June that the urbane lawyer might take a third turn as finance chief. His return in August has proved an antidote to the errors of his predecessor Pranab Mukherjee, and has revived foreign buying. But the rally will only last if the latest reforms boost flagging growth.

Chidambaram's latest feat is to promise a National Investment Board, a one-stop shop for investment approvals that could replace the bureaucratic wilderness that helps put India below the West Bank and Gaza in the World Bank's ease-of-doing-business rankings.

A lawyer from Tamil Nadu with a business degree from Harvard, Chidambaram knows what investors want to hear. That makes his encore a welcome relief to Mukherjee's widely panned tenure. Before being bumped up to the presidency in late June, the finance minister presided over an anti-investment rollback, threatening to levy taxes retroactively on foreigners, while failing to arrest a slide in government finances. The government once expected annual GDP growth close to 8 percent; the Asian Development Bank's most recent forecast is for just 5.6 percent this year. As a result, investors pulled $1.93 billion from India in the second quarter, helping send the rupee to a record low.

The mere prospect of Chidambaram's return helped to revive faith. Since May, Mumbai's benchmark stock index has risen almost 19 percent: investors pumped $2.1 billion back into the country in July alone. Since his reappointment in August, Chidambaram has not disappointed. After winning ruling Congress party kingmaker Sonia Gandhi's support, he unveiled September's "big bang Friday" reforms - cutting diesel fuel subsidies while easing restrictions on foreign investment in retail, airlines and broadcasting. India has since lifted rules on overseas borrowing and moved to open the insurance sector.

The promised National Investment Board may prove even more significant. But investors will eventually need to see evidence that new investment is eliminating infrastructure bottlenecks, reviving GDP growth and corporate earnings. Indian stocks now trade close to 14 times this year's expected earnings, up from a multiple of about 12 times in the spring. If Chidambaram succeeds in pulling India's growth story out of the hat, the revival will be more than justified.

CONTEXT NEWS

- Finance Minister Palaniappan Chidambaram said on October 4 that the cabinet was likely to accept a proposal to set up a National Investment Board.

- The board would help to speed up the clearance process for infrastructure projects, he said.

- Chidambaram said that notes on the board had already been circulated to relevant ministries ahead of a discussion at the next Cabinet meeting. Chidambaram made the comments while speaking to journalists in New Delhi, according to India's Economic Times.

- The Sensex rose by 18 percent between January 1 and October 5 this year.

(Editing by Peter Thal Larsen and Katrina Hamlin)

FILED UNDER:

INTERNAL SECURITY

REUTERS SHOWCASE

Setback For Sahara

Setback For Sahara

Supreme Court defers verdict on Sahara plea to raise more debt on hotels  Full Article 

SpiceJet Crisis

SpiceJet Crisis

SpiceJet says fleet grounded on lack of fuel  Full Article 

Drug Patents

Drug Patents

Novartis sues Cipla over respiratory drug Onbrez   Full Article 

Boost for Tata Steel

Boost for Tata Steel

Tata Steel restarts key iron mines amid shortage  Full Article 

Reuters Poll

Reuters Poll

BSE Sensex to hit 32,980 by December 2015  Full Article 

India Outlook

India Outlook

ADB trims growth forecasts for developing Asia, says India to grow 5.5 pct in 2014  Full Article 

Real Estate

Real Estate

HDFC to raise $500 mln real estate private equity fund - sources  Full Article 

Banking Sector

Banking Sector

Japan banks to bulk up India presence on improving ties   Full Article 

U.S. Spending Bill

U.S. Spending Bill

Obama signs bill $1.1 trillion government spending bill  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage