'Market gyrations not to jolt India growth story'

New Delhi, June 18: Sharp volatility and erosion of about 2000 points in the Sensex on global cues, mainly inflation and interest rates concerns, have not demolished India's growth story with GDP growth driven by continuous rise in industrial production and robust growth in services, a survey of top CEOs and CMDs said today.

A majority of 78 per cent CEOs and CMDs, polled by Assocham Business Barometer (ABB), said they expect the Index for Industrial Production (IIP) to grow by 8.5 per cent in 2006-07, improving upon the level of 8 per cent in 2005-06.

All the corporate heads opined that 'consumers spending as well as the industrial intermediate' will not be effected by the moderate price rise which is unavoidable in the wake of pass-throughs of the energy prices.

Besides the IIP, the service sector is likely to show a 10 per cent growth in 2006-07, for the second time consecutively.

As many as 87 per cent of the ABB respondents felt the same stating that the services like IT and ITes, tourism, finance, telecom and transportation would continue to perform well in the current fiscal, no matter what happens in the stock market.

Erosion in the stock market in May and earlier this month, may be steeper in the beginning of this fiscal as compared to the previous years, it was largely because of shuffling of portfolios by the foreign institutional investors (FIIs) which generally lie low in the Q1 of the financial year.

The analysis shows that the FIIs' net purchases in April 2006 were only Rs 825 crore. In May, this figure turned negative by Rs 7540.40 crore. Despite jolt to the market, the FIIs have remained net purchasers in June to the extent of Rs 1455.40 crore of which the equity component was Rs 1318.70 crore.

April and May 2005-06 were equally bad in terms of FIIs' net investment in the Indian market when their portfolio was negative by Rs 1776.60 crore and Rs 1144.8 crore respectively for the two months. May and June were bad even in 2004-05 when the FIIs' net investment was negative by Rs 3506.8 crore and Rs 523.2 crore respectively.

Investment pattern for the past few years has shown that the FIIs lie low in the first two quarters of the financial year and they pick up from the third quarter. (October last fiscal when the FIIs' net investment was negative was an exception, though). They deploy the maximum funds in the fourth quarter.

Besides, to offset their capital gains, they seek to create bigger portfolios. Within the fourth quarter the FIIs have been investing maximum in February and March. Their net fund flows in March were Rs 9482.90 crore in 2003-04, Rs 7686.10 crore in 2004-05 and Rs 6273.8 crore.

With Federal Reserve Chief Ben Bernanke downplaying inflationary worries, the markets all around the world witnessed a sharp pullback in the last two days of the week ended June 16.

Roller coaster in the market cannot be ruled out and the investors as also the industry has to get used to the phenomenon of sharp volatility.

''With India well integrated into the global economy, event-specific market gyrations could become quite common. But that should not mean the fundamentals disappear overnight. They remain in tact and will reflect in real numbers,'' Assocham President Anil K Agarwal said.

However, 20 per cent of the CEOs polled said a severe jolt in the market could impact the investment climate, which could become a supply side constraint. The overall business sentiment could also be adversely affected, they said.

Forty per cent of the ABB respondents said the market crash would hit the primary market, which in turn could disrupt the capital mobilisation efforts of the corporates. But 58 per cent of the company heads expressed hope that better times would return giving them ample opportunities to tap the market for resources.

As many as 79 per cent of the pollsters said the government needs to move fast and catch up with the reforms agenda, including labour reforms, pumping of investment in the cracking infrastructure and remaining steadfast on difficult decisions like hike in petroleum prices.

UNI