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Dow 10,000

For the first time since May 2002, the Dow Jones Industrial Average has topped 10,000. Is this a bull signal?

By Narendra Nathan

In a word, yes. Stock markets around the world are responding to what is best described as a bull signal. For the first time since May 2002, the Dow Jones Industrial Average, the world's premier index (still, in this post-bubble world), has crossed 10,000.

Though still 14 per cent lower than its all-time peak of 11,750, the Dow has gone past a psychological barrier under global economic circumstances that have been rather taxing, to put it mildly, these past three years. It seems hard to believe that just three quarters ago (in March 2003), the Dow was down at 7,417.

And if you're a Nasdaq watcher, things have been even more exciting. The Nasdaq Composite Index has fetched a return of 53 per cent over the same period (it's up from 1,253 in March to 1,921 now).

Is there much further to go?

Though nobody is expecting the sort of bull frenzy seen at the end of the 1990s, several economic indicators hint that the US is getting back into shape as the prime motor of the world economy. The country's consumer confidence index has started rising once again. The economy itself has scorched ahead in this last quarter---zooming a lot faster than commentators thought possible. And corporate performances have been good.

Since America's sensitivity to the Dow is legendary (so many households own stock as their main form of 'wealth' that crowds at shopping plazas are determined by the state of the index), it follows that the current buoyancy could set off a virtuous cycle. High Dow, more spending, more spending, higher Dow.

And what about the Indian markets? Since a US economic revival could boost export revenues, sectors such as IT could zoom again. Even otherwise, the rippled effect could help lift Indian bourses (after all, the recession helped depress them). The difference this time round, though, is the phenomenon of a rising rupee vis a vis the US dollar. "The huge current account deficit (currently placed at around 6 per cent of the GDP) is putting pressure on the dollar," says Raamdeo Agrawal, managing director at Motilal Oswal Securities. What this translates to is this: wary of dollar denominated assets, some of the global investment money is likely to come this way. "Asia is the top favorite now. As India is the second fastest growing economy, Indian markets are also getting a lot of interest," says Agrawal.

Well, FII investment in Indian markets has already topped $7 billion during 2003. And market players such as Agrawal believe that the FII inflow in 2004 will not be any less. It is potentially a terrific year for business across the world. And stock markets, remember, are considered the economy's best anticipation machines.

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