Eternal Indian cycle

11 February 2008 By Martin Hutchinson

Despite a 73times oversubscribed IPO, Reliance Power shares dropped 17% on the first day. Blame a sharp tightening of liquidity in India. It s not just stocks that are vulnerable. If foreigners stop financing excessive government deficits, the country s growth could suffer.

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Reliance Power, which made India's largest ever public offering of $3bn in January, opened for trading on February 11 and after a brief opening spurt fell by the end of the day to Rs372.3, 17% below its offering price of Rs450. The offer had attracted subscriptions of 73 times its principal amount.

Two other Indian IPOs, for Wockhardt Hospitals and EMaar MGF Land, were pulled in the week of February 5.

The Mumbai Sensex Index closed at 16,630.91 February 11, down 22% from its alltime high of 21,206.77 reached on January 10.

India had a GDP of $895bn at market exchange rates in 2007; it grew at 8.5%; GDP per capita at purchasing power parity was $2,700. Inflation was 5.9%. The current account deficit was 2.2% of GDP. India's M3 money supply was up 23.8% yearonyear on January 18. Central government expenditure in AprilNovember 2007 was up 22.2% on the previous year; the combined Federal and state budget deficits was about 8% of GDP.

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