Indian markets surge in 2014 on hopes Modi will revive growth

The year just gone by was a bumper one for the Indian equity markets with the market barometer BSE Sensex gaining 30 per cent. The gain can be attributed to the rise of Narendra Modi as the country's Prime Minister. Modi was by far the biggest factor that revived interest in Indian equity markets, which saw foreign institutional investors investing over $16 billion. If we include the debt market, total net inflows by foreign investors stand at $42.4 billion.

While many events supported the rise in the Indian markets, the Modi government's promise to accelerate economic growth struck the right chord with investors. This is not to take away the effort of the Reserve Bank of India that took some hard and quick measures to save the economy from high inflation and a weak rupee.

While fundamentally not much has changed, there is a strong belief that India under Modi is expected to be pro-business, pro-growth and pro-reforms and the new government will revive demand and investment. India emerged as one of the favourite markets in the world. In the MSCI Emerging market index, India was the fourth-biggest gainer after Egypt, the Philippines and Indonesia. The MSCI India index gained 21 per cent in 2014. This restricted the fall in the MSCI BRIC index to six per cent due to a massive 45 per cent drop in the Russian index and a 17.5 per cent decline in the Brazilian index.

The slump in international oil prices also augured well for India. Crude oil prices plunged from $110-120 a barrel to $60 during the year. This made domestic fund managers bullish as about 75 per cent of India's crude oil requirements are met through imports. More importantly, falling oil prices helped ease inflation and control the current account deficit. A fall in inflation, especially food inflation, further boosted sentiment and increased hopes that the RBI will cut interest rates in the future to boost growth and investments.

Cleary, 2014 saw a rally on expectation that India would emerge as a strong economy and would be the investment destination for the world.