Sunder singh
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Investing in the Indian
Economy: Your Best Bet
of the BRICs Right Now
by MONEYMORNING on 3 JULY 2012
The European Central Bank's refusal
to act dramatically to stem the
eurozone crisis has forced
politicians to make more effort to
find a solution. They don't like it,
but it's the only hope of finding out
if the European 'project' will ever
actually work.
Similarly, India's central bank has
been standing firm against its
government too: interest rates were
left sitting at 8% at its last meeting a
couple of weeks ago, despite a rapid
slowdown in the economy.
The good news is that this could be
just the kick in the backside that
India's paralysed government needs
to get the country moving again.
And that could be very good news
for investors in the Indian
economy.
The Mythology of the BRICS
The grouping together of the BRICs
countries (Brazil, Russia, India and
China) was always more of a crafty
marketing slogan than anything
else. But while everything was rising
together, it was easy enough to just
lump all the emerging markets into
one big group.
Today, you need to be more
discriminating. You probably
already know what we think of
China – the country has been overly
dependent on demand from
overseas consumers, who are now
in trouble. Its infrastructure-
spending boom – which took over
as the main driver of growth after
the 2008 crash – has run its course
too.
So it needs to change strategy again.
But trying to run the Chinese
economy on internal consumer
demand alone is not going to be an
easy shift, particularly when the
economy is trying to cope with a
bursting property bubble.
China's loss of appetite for raw
materials is in turn bad news for
commodity-dependent countries.
That includes Brazil and Australia ,
which have both ridden the
commodity supercycle higher and
now have big consumer credit
bubbles to worry about.
As for Russia , it's cheap, but it's still
too reliant on oil. I'm sure there's
money to be made there, but you
have to have your wits about you.
In short, most of the big emerging
market stories of the past decade
have been heavily linked to the
commodity cycle, which in turn has
been driven by China.
India – The BRIC With a Difference
But one Bric is very different.
India's economic problem , as Rahul
Saraogi of Atyant Capital points out,
'is the exact opposite of China and"¦
[the] commodity-exporting
countries'. China's problem is one of
over-capacity – it has over-invested;
India on the other hand, 'has
chronic short supply of everything.'
Inflation is high at well over 7%.
The government is weak and is
making little or no progress in
getting rid of barriers to
investment, or improving
infrastructure. Economic growth fell
to 5.3% in the first quarter, against
an expected 7%. Meanwhile, the
rupee has fallen to a historic low
against the US dollar.
That all sounds pretty grim. And it
is.
Should You Invest in the Indian
Economy?
But the good news is that the Indian
economy stands to benefit from
falling oil prices. Meanwhile, the
weak economic figures are pushing
the government to act. Prime
Minister Manmohan Singh took
over the finance ministry last week;
that encouraged investors because
he helped India's economy turn
around when he was finance
minister in the 1990s.
Saraogi believes it would only take
a change of sentiment towards India
for the market to rally sharply.
Indeed, it has already seen a decent
bounce in June, helped by Singh's
move. As Citywire pointed out last
week, Sanjiv Duggal of HSBC GIF
Indian Equity fund – the world's
largest India fund – has also been
buying in.
Sanjiv has previously warned – in
December 2007 – against buying
India when he felt it was
overvalued, so he's no perma-bull.
But now he feels that buying is a
good move.
'This is the worst sentiment has
been in the 16 years I have been
running the fund,' he says.
'Investors should take advantage of
the weak currency and the risk/
reward profile is very favourable
from a medium-term perspective.'
I wouldn't stake a huge amount of
your portfolio on it (5% is what I'd
be looking at). The Indian economy
will remain tied to the 'risk-on',
'risk-off' cycle as investor fears over
Europe and the US rise and fall. The
country's leaders have also shown a
real aptitude for disappointing
(although they're hardly unique one
that score).
But as an emerging market which
will benefit, rather than suffer, as
the commodity supercycle slows, I
think India's economy is worth
dripping at least some money into.
John Stepek
Contributing Editor, Money
Morning
Economy: Your Best Bet
of the BRICs Right Now
by MONEYMORNING on 3 JULY 2012
The European Central Bank's refusal
to act dramatically to stem the
eurozone crisis has forced
politicians to make more effort to
find a solution. They don't like it,
but it's the only hope of finding out
if the European 'project' will ever
actually work.
Similarly, India's central bank has
been standing firm against its
government too: interest rates were
left sitting at 8% at its last meeting a
couple of weeks ago, despite a rapid
slowdown in the economy.
The good news is that this could be
just the kick in the backside that
India's paralysed government needs
to get the country moving again.
And that could be very good news
for investors in the Indian
economy.
The Mythology of the BRICS
The grouping together of the BRICs
countries (Brazil, Russia, India and
China) was always more of a crafty
marketing slogan than anything
else. But while everything was rising
together, it was easy enough to just
lump all the emerging markets into
one big group.
Today, you need to be more
discriminating. You probably
already know what we think of
China – the country has been overly
dependent on demand from
overseas consumers, who are now
in trouble. Its infrastructure-
spending boom – which took over
as the main driver of growth after
the 2008 crash – has run its course
too.
So it needs to change strategy again.
But trying to run the Chinese
economy on internal consumer
demand alone is not going to be an
easy shift, particularly when the
economy is trying to cope with a
bursting property bubble.
China's loss of appetite for raw
materials is in turn bad news for
commodity-dependent countries.
That includes Brazil and Australia ,
which have both ridden the
commodity supercycle higher and
now have big consumer credit
bubbles to worry about.
As for Russia , it's cheap, but it's still
too reliant on oil. I'm sure there's
money to be made there, but you
have to have your wits about you.
In short, most of the big emerging
market stories of the past decade
have been heavily linked to the
commodity cycle, which in turn has
been driven by China.
India – The BRIC With a Difference
But one Bric is very different.
India's economic problem , as Rahul
Saraogi of Atyant Capital points out,
'is the exact opposite of China and"¦
[the] commodity-exporting
countries'. China's problem is one of
over-capacity – it has over-invested;
India on the other hand, 'has
chronic short supply of everything.'
Inflation is high at well over 7%.
The government is weak and is
making little or no progress in
getting rid of barriers to
investment, or improving
infrastructure. Economic growth fell
to 5.3% in the first quarter, against
an expected 7%. Meanwhile, the
rupee has fallen to a historic low
against the US dollar.
That all sounds pretty grim. And it
is.
Should You Invest in the Indian
Economy?
But the good news is that the Indian
economy stands to benefit from
falling oil prices. Meanwhile, the
weak economic figures are pushing
the government to act. Prime
Minister Manmohan Singh took
over the finance ministry last week;
that encouraged investors because
he helped India's economy turn
around when he was finance
minister in the 1990s.
Saraogi believes it would only take
a change of sentiment towards India
for the market to rally sharply.
Indeed, it has already seen a decent
bounce in June, helped by Singh's
move. As Citywire pointed out last
week, Sanjiv Duggal of HSBC GIF
Indian Equity fund – the world's
largest India fund – has also been
buying in.
Sanjiv has previously warned – in
December 2007 – against buying
India when he felt it was
overvalued, so he's no perma-bull.
But now he feels that buying is a
good move.
'This is the worst sentiment has
been in the 16 years I have been
running the fund,' he says.
'Investors should take advantage of
the weak currency and the risk/
reward profile is very favourable
from a medium-term perspective.'
I wouldn't stake a huge amount of
your portfolio on it (5% is what I'd
be looking at). The Indian economy
will remain tied to the 'risk-on',
'risk-off' cycle as investor fears over
Europe and the US rise and fall. The
country's leaders have also shown a
real aptitude for disappointing
(although they're hardly unique one
that score).
But as an emerging market which
will benefit, rather than suffer, as
the commodity supercycle slows, I
think India's economy is worth
dripping at least some money into.
John Stepek
Contributing Editor, Money
Morning
