The Indian stock markets raced to a new all-time high in early May backed by very strong inflows from foreign institutional investors. In the first five trading days in May foreign investors brought in nearly $800 million. Up to this point foreign investors had been investing an average of $1.2 billion a month in Indian equities. The key Bombay Stock Exchange sensitive index hit 12,624 points, a level never before seen. Trading volumes on the Indian stock exchanges, including equity derivatives, reached $15 billion a day from just $4 billion to $5 billion a day a year and a half ago.
Foreign investors appetite for Indian securities is driven by a significant increase in confidence levels in the Indian economy. According to the Lausanne, Switzerland-based International Institute of Management Development (IIMD), Indias competitiveness has soared over the past year. It is now 29th in the IIMDs list of 61 countries, up from 39th last year. The rankings for 2006 are based on 312 criteria including government efficiency, business efficiency, infrastructure and economic performance.
Both the countrys growing competitiveness and its improving economic climate are beginning to translate into investment action from a host of global corporations. Koreas LG Electronics, for example, has announced a plan to dramatically increase the number of optical storage devices it sources from India. This expanded capacity will cater to the Gulf countries, South East Asia and LGEs other regional markets. Currently, LGE sources $100 million worth of optical storage devices from its Indian plants and plans to double this within a year of its expanded capacity commencing operations.
Another big Korean manufacturer, Hyundai Motors, currently is one of the biggest exporters of manufactured goods from India, sourcing more than 100,000 cars from its plant located in eastern India. Hyundai recently doubled its plants capacity to half a million cars a year.