India, Pak top Asia-Pacific equity market returns

India and Pakistan have posted the highest gains among developing Asia-Pacific equity markets, posting much stronger returns than those in 2004, according to "2006 Asia-Pacific Financial Markets Outlook" published by Standard and Poor's (S&P).

The data collated by S&P stated that in 2005 the market capitalisation of 149 Indian companies have touched $4,35,238 million, amounting to a return of 41.15 per cent against 15.01 per cent in 2004.

For Pakistan, around 24 companies have accounted for a m-cap of $28,059 million in 2005, with total returns recorded being 68.6 per cent against 26.94 per cent in 2004.

The global rating major's equity research forecasted that the GDP growth in the Asia-Pacific region would be around 6.1 per cent in 2006. It, however, stated that the potential danger from the hikes in oil price and interest rate might have been overstated.

In its outlook for the domestic credit markets, S&P said stable credit quality is expected among the Crisil-rated entities in 2006.

This could signal the beginning of a consolidation phase for Indian corporates, following three years of continuous improvement in credit quality.

S&P predicted that economic growth may weaken slightly from the levels of recent years. However, it would still be at approximately 7 per cent.

In its outlook for Indian corporates in 2006, the rating agency pointed out that increasing global competitiveness and continued retail demand would help local companies overcome challenges like higher interest rates, oil prices, and a slowdown in economic growth.

S&P predicted that financial engineering is likely to emerge as one of the key trends in the Asia-Pacific region in 2006. Banks and pension funds "" with very high levels of liquidity "" looking for higher returns and corporations eager to grow through expansion and acquisitions would bolster this trend, it felt.

With a large number of companies having announced projects for capacity expansion, S&P expects banks and other financial sector entities to largely benefit from this spurt in credit demand.

Large economies like China and India becoming increasingly affluent present a consumer base that can act as a buffer to events beyond the region.

However, S&P considers this to act as only a partial buffer, as these economies could be prone to any prolonged downturn in the US or Europe.