Wednesday, July 23, 2008

India investing: Few new perspectives

Investors are extremely concerned about the recent market crash in emerging markets especially India. In dollar terms Indian Market has provided one of the worst returns in the year 2008. The Indian Equity market was down more than 52% and Indian currency Rupee was down more than 19%. But at the same time people are still interested about India and BRIC markets as they have created enormous amount of wealth in the last few years. Here I will try to give you some insights about India which may open up few new perspectives for India investing.


1. Increasingly high Credit driven consumption. As we have seen in the US, Credit driven bubbles always burst. Banks and other Financial Institutions need to show prudence during Credit approval process for long term sustainable business.
2. Administrative inefficiencies, high corruption rate and popular politics driven government policies (oil subsidies etc.).
3. Non inclusive growth (similar to the US, bottom of the pyramid is getting poorer day by day).
4. Weak Infrustructure. Low Broadband speed, lack of highways,good schools etc.

But there are few advantages of India investing:

1. India has its relatively low correlation with the US economy (which is in recession for at least a year) and the growth is driven by high domestic demand. This helps India to sustain growth even when the matured economics do not perform.
2. India is the place for extraordinary raw talent and innovation. As I see increasing global acceptance of Indian talent and more and more initiatives from government and corporate sector for nurturing these 700,000,000 young raw talents through education I become immensely optimist about India in the knowledge economy. People have lot of aspirations and they now dream big for their next generation.
3. One of the most efficient Capital market in the world. Domestic interest for equity investing is increasing (still India has very low Market Cap but very high saving rate compared to its GDP and there is a huge opportunity for Capital market growth if the bulk of the saving moves to Equity market).
4. Emerging market growth rate is generally better than matured economics. BRIC still have huge potential to grow.
5. Indian Bull is relatively new phenomena. Following historical trends it should be on for at least next decade.
6. I see few specific sectors in India having huge growth potential. They are Agriculture and Agro processing (Food Corporation of India wastes 40% of the Foods stored, lot of inefficiency due to information asymmetry and storage limitations, there exists huge export potential for Fruits, Flowers, Oils etc.), Education (still there are very few good quality educational institutes), Entertainment (including adult entertainment entertainment), Tourism (including religious and health or wellness tourism), real-estate (very low penetration in Tier 2 or 3 cities) etc.

Tom Peters says, ‘There are no answers. Just, at best, a few guesses that might be worth a try’. So is the case for India investing. India is a very volatile market and it may outperform for one year but miss the next. You cannot simply predict Indian equity in the short and medium terms. But in the long run, stock investing generally provides superior returns and that is more true for emerging markets like India.