India Stocks: When Will the Party End?

India's Best Blue-Chips marketcap in Billion $
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For months, India's stock market defied gravity. On Oct. 29 2007 the Sensex—the Bombay Stock Exchange's index of 30 top stocks—touched 20,000, up 1,000 points in just 11 trading sessions, and a gain of 41% since January. It has dropped 5% since, as markets worldwide have fallen amid renewed concern about subprime fallout from the U.S. Still, the stock market capitalization is now $1.3 trillion, much higher than India's gross domestic product of $900 billion.

According to the Securities & Exchange Board of India (SEBI), in October alone foreign inflows touched $5 billion, compared to the $17 billion total inflow this year. In all, about $30 billion worth of foreign investment has poured into the market since February, 2006.

Back then ( February 2006) the Sensex was at 10,000 points. Now ( October 2007 ) it's almost at 20,000. While some people worry about a correction, Andrew Holland, managing director of Merrill Lynch's (MER) Indian joint venture, DSP Merrill Lynch, is ecstatic about longer-term prospects. "I continue to be bullish on the market," he says. "GDP will continue to grow over the next five years, and corporate earnings will be strong."

In the past year, Indian companies have raised about $13.5 billion in debt and equity from global markets, according to data tracker Prime Database.