No evidence for reversal in market rally,says Bhave

Accelerating economy,slew of public offers to attract investors. Foreign flow has seen $21.7 bn being pumped into markets

Record overseas buying of Indian stocks is unlikely to reverse as an accelerating economy and share sales by companies including the worlds largest coal producer lure investors,the capital markets regulator said. We have no reason to believe,at least if we go by historical evidence,that there will be a sudden reversal, Securities and Exchange Board of India (Sebi) chairman C B Bhave said in an interview with a television channel. For overseas investors its important that there is supply of enough paper otherwise asset prices may surge,he said.

International investors have bought $21.7 billion of stock this year,driving the Bombay Stock Exchanges Sensex to near the highest level ever. Coal Indias share sale this month will add to the record Rs 79,400 crore ($17.9 billion) raised by the nations companies this year. The inflows helped the rupee gain 4.5 per cent against the dollar in September,the most since May 2009.

India is clearly emerging as a key asset globally, Prashant Jain,chief investment officer at HDFC Asset Management Co,which manages $21 billion in assets,had said. How many economies are there in the world that are of our size,growing at 8 to 9 per cent,where neither the companies nor the households are leveraged?

Indias government doesnt need to restrict foreign institutional or direct investment at this time,finance minister Pranab Mukherjee had said in Washington on Thursday. The International Monetary Fund on October 6 raised its 2010 growth forecast for Indias gross domestic product to 9.7 per cent from 9.4 per cent,citing strengthening consumer spending. Asias fastest growing economy after China expanded 8.8 per cent in the three months to June.

As long as India is on a growth path I dont think we should think of sudden reversals, Bhave said . India is considering allowing individual overseas investors to directly buy stocks for the first time,easing a rule that restricts investment to mutual funds,a finance ministry official with direct knowledge of the matter said on Friday. Indias stock performance is closely tied to foreign fund flows that last year helped drive the Sensex to its biggest rally in 18 years. The largest outflow in 2008,amid the global financial crisis,triggered the gauges biggest annual slump and prompted Bhave to scrap rules that tightened controls on unregistered funds. The October 16,2007,curbs on offshore derivatives triggered a slump in stocks that halted trading and ended eight straight weeks of Sensex gains.

Still,Bhave is tightening know-your client rules to stop overseas funds bypassing foreign-exchange and securities rules. In a September 30 statement,the regulator said 197 overseas investors and 342 sub-accounts were barred from taking fresh positions in the cash and derivatives markets for failing to meet disclosure rules. Its not acceptable for funds not to know who they are buying assets for,Bhave said.

The Sensex has rallied for a record seven straight quarters. The gauge has increased 16 per cent this year,making it the best-performer among 10 of the worlds largest markets.

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The government aims to raise $8.9 billion in the year ending March 31,selling state assets including Coal India,Steel Authority of India Ltd. and Indian Oil Corp. Coal India may raise Rs 15,000 crore,two people with knowledge of the matter said in August,making it Indias largest. There is enough room to support that kind of paper, Bhave said. Bhave also said the regulator plans to cut time taken for companies to start trading from the day they sell shares to seven days from the current 10 to 12 days to improve transparency,he said.

The Indian market has a bright future and demonstrated its resilience through this tumultuous period of 2008-09 and then the subsequent reversal of that trend, he added. FE