India's stock market, one of the world's worst performers this year, should recover those losses later in 2003 thanks to the economic boost from drought-breaking rains, a Reuters poll of brokers and fund managers has found.

The top-30 index of the Bombay Stock Exchange, which is down 12 per cent since the start of the year, is forecast to bounce back 15 per cent to 3,421 by the end of 2003, with most of those gains coming in the last quarter of the year.

The index closed at 2,994 on Tuesday, down from 3,377 at the end of 2002, led by a meltdown in technology issues which sliced market capitalisation by $14 billion to $120 billion.

The poll of 14 brokerages and mutual funds released on Wednesday found they expected on average the index would rise a further 5 per cent in the first quarter of 2004 to 3,581.

The late rebound is driven by an expected surge in gross domestic product because rains are forecast to be much better than a year ago when drought hit farm output.

India, the world's 12th-largest economy, is seen growing by around six per cent in the current year to March, up from 4.4 per cent growth last year.

More than two-thirds of India's billion-plus population live in rural farmlands, making a living from agriculture which accounts for a quarter of GDP. Bountiful rains boost farm incomes and generates demand for industrial goods.

Domestic growth key

"Historically it has been proved that for every percentage point of incremental growth, corporate earnings rose by 20 per cent," said Sindhu Sameer, head of institutional sales at B&K Securities.

That correlation has raised hopes for key economy-related sectors like cement, automobiles and oil refining which have been rated as overweight by a majority of the respondents.

"They will be direct beneficiaries of India's growth story," said Gurunath Mudlapur, head of research at Khandwala Securities.

"Entry barriers are high in these industries and they have also adapted well to the reforms process."

India's economy grew consistently over 6 per cent in the 1990s when the country embarked upon free market reforms, up from the sedate 3.5 per cent in previous three decades.

"A good monsoon will act as a catalyst for demand-led growth in cement, consumer goods and auto sectors," said R K Gupta, the chief investment officer at Taurus Mutual Fund, which manages Rs 1.5 billion of funds.

Consumer goods companies which have been under a cloud since last year's drought are expected to perform better after the June-September monsoon season, with the percentage of overweight ratings improving marginally.

Troubled techs

A majority of the poll participants were underweight in technology stocks both in the near-term and medium-term.

Indian software services firms have struggled as stiff competition has sliced profit margins and a stronger rupee has hit export earnings.

"We don't see any recovery in the global spending on technology in the next one year," said Srividhya Rajesh, Madras-based fund manager with Sundaram Mutual Fund which controls assets worth over Rs 14 billion.

"Margin concerns also continue with competition in the form of multinationals setting up shop in India, coming into play."

(Additional reporting by Rosemary Arackaparambil and Denny Thomas in Mumbai, and Shailendra Bhatnagar in New Delhi)