29 Jan 10 Will this be an Indian decade?


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Market sentiment is fickle. Analysts and media seem compelled to manufacture reasons (post-facto) for why the market is going up or down. So one day the Nifty rises because FIIs feel that India is a great long term story. The next day, it collapses because China may reduce liquidity in their economy. Or US industry laid off more people than expected last month. One week, result expectations move stocks up, and the next week it’s exactly the opposite. Today, media focus is on the RBI policy, tomorrow it will be the budget. On top of that we have tsunamis, privatization, random statements by ministers, terrorism, currency rates, oil prices… and a million other “reasons”.

 

This is all a complete waste of time. I believe that the short term is entirely unpredictable, but long term trends are much more visible, as they are based on fundamental root causes. To put it another way, I don’t know where the Sensex will be tomorrow, next week, next month, or next year. But I am willing to bet anything that the next decade will provide significant returns to equity investors in India.

Why do I think so?

 

Essentially:

  • India is now “visible”, and much more than ever before.

  • Western economies will grow slower than emerging economies for several years, and investors will chase growth.

  • There is a huge amount of excess liquidity sloshing around the world, and tightening will have only short-term impact.

  • The Indian middle class is now significant, visible and growing rapidly. Their savings along with a reforming financial sector (insurance, pension funds) will enhance the domestic capital pool substantially over the next ten years.

  • Indian entrepreneurs now have far greater self-belief than ever before.

  • More than just FII investment, I believe the bigger surprise will be direct investment, or FDI. Corporations around the world are realizing (and more of them every day!), that they cannot afford not to be present in the Indian market. Their urgency or need is greater than financial investors, who are primarily interested in return on traded prices (and may run off to the next undervalued opportunity) – as there no other consumer markets like India will be!

  • China has been winning hands down on FDI, thanks to infrastructure investment combined efficacy of bureaucracy and procedure. India compares very poorly on both these, but in the last few months, more and more international media are “discovering” India’s soft advantages.

  • China and other emerging markets will also attract capital, but India is arguably the most under-invested large market.

  • Finally, we Indians are getting smarter at marketing ourselves.

     

And before I forget, what about terrorism, poor governance, Naxalites, corruption, a crumbling infrastructure and all that? Sure this is holding India back, and will continue to do so. Bomb blasts, religious or sectarian violence, stupid lawmaking, mismanaged natural calamities, and all the bad stuff already happens. It will continue to happen. However, this is the norm, and not an aberration. That’s why growth oscillates between 8% and 9%, instead of 12%.

 

Please be prepared for short-term shocks and volatility. This is India, and those who measure risk by volatility must factor that in. However, average GDP growth rate will chug along, and with a little bit of luck, cross the magic double digit mark. And that is a long-term trend or wave that will fuel (and re-fuel as required) the long-term India story!

 

ps… I still have no clue what the markets will do next week!

Arun Jethmalani
Arun Jethmalani

Arun is one of the founders of ValueNotes. Apart from trying to build a high-quality research business, he has spent the last 27 years researching, analyzing, and dissecting companies and industries. He has worked with clients of all shapes and sizes, from all parts of the world – in providing them insights that make a difference to their business.
Prior to ValueNotes, he was an equity analyst/advisor, and wrote extensively on investing – including a column titled “Value for Money” which ran for 10 years in the Sunday edition of the Economic Times. To this day, he remains an avid “value” investor.
He has also been published in several other publications, and is a regular speaker at events related to technology, investing, competitive intelligence, business process management, Internet, etc. See: Valuenotes Events
He has been instrumental in developing a community of research and intelligence professionals in India, and is the founder and current chairman of the SCIP (India) Chapter. Arun holds a B Tech from IIT, Bombay and an MS from Duke University, NC, USA. LinkedIn Profile

1Comment
  • Suresh
    Posted at 11:40h, 02 February Reply

    This is what we optimistic Indians always believe… that this time, it will be different! Let us not delude ourselves. As long as we have a political system that works only for itself, there will be no real improvement. All the GDP gains will go into the political pockets, not yours or mine.

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