Record foreign fund inflows of $28.7 billion powered the annual gains in the main index, which rose to its highest close in about seven weeks on the last day of the year, and market participants were optimistic a rapidly growing economy would continue to attract money into local equities.
But, key risks for markets in 2011 are inflationary pressures that may lead to the Reserve Bank of India raising rates aggressively and continued political stalemate that could push policymaking into limbo.
“There are challenges going ahead and 2011 definitely won’t be a smooth ride for domestic and global economy, but we (India) are better placed,” said a fund manager.
“Globally, we continue to face challenges of sovereign defaults, especially in Europe. As long as global economy remains stable, there are enough funds to be deployed in capital markets,” he observed.
The 30-share BSE index ended up 0.59 per cent, or 120.02 points at 20,509.09 on Friday, with 22 components closing in the green. The index added about 5 per cent in December, its first monthly rise since September. It was its eighth straight quarterly rise, after it added 2.2 per cent in December quarter.
The 50-share NSE index closed 0.54 per cent higher at 6,134.50 points on Friday, rising 17.9 per cent in 2010.
In the year to December 29, foreign institutional investors were net buyers of $28.7 billion of Indian equities, compared with $17.5 billion pumped in 2009. “Global investors’ exposure to emerging markets is lower (than developed markets), but Brazil, Russia and India are likely to attract larger flows within this,” said another market watcher.
“With around 9 per cent of GDP growth for several years to come, I think the Indian market will continue to attract strong foreign inflows,” he pointed out.
The main stock index rose 17.4 per cent in 2010, after surging 81 per cent in 2009. It is seen rising to 23,350 by end-2011, which would be a 14-percent gain from current level, a Reuters poll showed.
In Asia, India outperformed peers such as Hong Kong, China and Japan, but lagged Indonesia and Korea.
Marketmen said the global economic revival, which began in 2009, was confirmed in 2010, is set to continue in the new year and the Sensex is likely to breach 24,000-mark in 2011.
However, they cautioned that pressure in the form of higher inflation, interest rates and current account deficit may play spoilsport.