India-based companies get boost in US trading

NEW YORK - The celebratory mood in India's stock market carried over to New York hours for some India-based firms.

After India's stock market surged more than 17 percent Monday after decisive elections, depository receipts of Indian-based firms listed on U.S. stock exchanges skyrocketed. Investors in India welcomed the results of a month-long election that raised hopes for a rekindling in foreign direct investment and economic growth.

Bank of New York Mellon's India ADR Index, which tracks 13 Indian companies trading in the U.S., rose 18 percent in afternoon trading.

The Bombay Stock Exchange's benchmark Sensex vaulted 2,110.79 points, or 17.3 percent, to 14,284.21 when the market opened Monday in Mumbai, triggering a historic shutdown. Trading has never before been halted due to an upward swing in stock prices, according to the Bombay Stock Exchange.

The rally is likely to continue in the coming weeks because of a complete change in the climate in the market, said Arvind Panagariya, a professor of economics and the Jagdish Bhagwati professor of Indian political economy at Columbia University. Panagariya said the entire outlook for growth is now improved because of the election results.

An influx of foreign institutional investors should also help drive the rally, he added.

The convincing vote for the Congress Party and the near-collapse of India's once-powerful communist parties could mean key reforms in insurance, pension funds, banking and retail are now more likely to get enacted.

Two banks, HDFC Bank and ICICI Bank, saw their U.S. depository receipts shoot up more than 20 percent. HDFC Bank gained $17.33, or 22 percent, to $96.23. ICICI Bank jumped $6.58, or 28.1 percent, to $29.97.

Mahanagar Telephone Nigam, a fixed line telecommunications firm, rose 69 cents, or 23.8 percent, to $3.59. Sterlite Industries, an industrial metals and mining firm, rose $2.36, or 25.7 percent, to $11.54, while Tata Motors jumped $1.92, or 25.3 percent, to $9.52.

But it isn't clear how quickly or how far economic changes will go, which makes a potential long-term rally uncertain.

The Congress Party did not gain a full majority in the legislature in the recent elections, and will need to govern as it has in the past by forming a coalition. The party's past actions on opening financial markets have been limited, meaning pro-market liberalization is not a lock.

Panagariya said that the president of the Congress Party leans toward being a populist, which could lead to some hesitation to enact some reform.

"There is a faction in the party that is not warm" to changes, Panagariya said.

In addition, the global economic meltdown over the past two years could make India more wary of outside investment. The country also will likely continue to fund costly social welfare programs that could divert money that could be invested into economic growth.

Even still, investors immediately welcomed the potential changes for Indian firms. Shares of infrastructure, banking and real estate companies led the way in trading in India, and depository receipts trading in the U.S. of those types of firms were surging as well.

India began to shift away from decades of socialist-style policies in the early 1990s, pushing for greater economic openness. But over the past five years, many market reforms that Congress backed were blocked by the communists, which saw its seats more than halved in the month-long election.

Now the Congress party has more room to ease restrictions on foreign investment in insurance, retailing and banking. The government may also sell some of its stakes in state-run oil, banking, and fertilizer companies. The nation's pension regulator could get proper legal standing, which would encourage greater investment. And some steps might be taken to loosen hidebound labor laws, like allowing contract labor, analysts and business groups say.