I have been worrying of late. Some signs are emerging that India's stock market rally
may be faltering a tad.
But my concern doesn't stem from anything that I see on the macro or the micro horizon. Things look quite agreeable in India. No, my concern stems from disquieting reports in the media about how foreign brokers are turning bullish on India, turning bullish on India's prospects, on India's rupee, on India's current account deficit, on India's reforms
, on India's rule of law, on India's movies.
The reason I view all this bullishness with great trepidation is that I have never seen these Wall Street types get it right about markets. And I have been around a while. From the Latin American crisis to the Asian crisis, from the dotcom crisis to the subprime crisis, Wall Street has gotten it always wrong impressively and unerringly. It has been a series of bravura performances on how not to get things right on markets.
In the very same breath, pompous analysts and economists sitting in high rises in Hong Kong and Singapore, have, all through last year and up till June this year, extolled China for "slowing things down perfectly to plan" while India was slowing down absolutely without any plan.
All reports by these guys have been uniformly bullish on China, and supremely bearish on India. China gets it. India doesn't. China's politicians can walk on water. India's walk through treacle. China has plenty of firepower and stimulates its economy any time it wants to… it is just letting it glide to stall speed. India is bust, no money anywhere, high twin deficits, so there is no way India can stimulate. China is clean politics, no corruption. India is corrupt through and through.
"I AM OF THE CLEAR VIEW THAT A FEW YEARS FROM NOW THE WORLD WILL LAUD INDIA'S ECONOMIC GROWTH MODEL, AND LAMBAST CHINA'S".
One of the things that really made me crack up was when a Western analyst said the "I" in BRIC should be Indonesia and not India! I found that really creative, clever, and actually quite an adorable thought.
And then we have had the global rating agencies. Perenially bearish on India. Threatening to downgrade India 12 months a year. Let us just go back and see their track records … Mexico was a super investment grade country in the early 1980s. Asian countries were AAA just before they all went bust in 1997/98. Sub prime was rated AAA. European economies were all AAA
before they went belly up.
So I am now very worried that these guys will change their view on India and actually talk of raising their ratings.
Whatever happens, we simply can't afford these foreign brokers and agencies turning bullish on India.
And since they have been bearish on India nearly all of 2012, let's look at how we have done… India is the fourth best performing market in the world this year, up 22 per cent. The rupee has been flat through the year. China is down 4.5 per cent this year. Russia is up just three per cent. Brazil is up one per cent (and its currency is down eight per cent this year!). And yes, Indonesia is up 13 per cent but hold on, its currency is down six per cent this year! So much for replacing India with Indonesia in the BRIC pack.
Actually, that's not such a bad thought. India simply doesn't belong to that pack. India stands heads and shoulders above that group in terms of composition of GDP growth, organic growth, rule of law… I could go on and on, but suffice it to say that India's growth model towers above the rest.
So how do things look from here?
They look great as far as India is concerned. India's growth rate has bottomed out. Same time next year, India will be smoking hot in terms of relative growth rates. The RBI has to cut rates. That will give another boost to the economy. Oil prices are headed sharply downwards. Gold prices and gold imports are headed sharply downwards as well. Both are great for the current account. I see the rupee in the 40s range in the next few months.
Too much is being made of the slow pace of investment. That's not as bad as it seems. India created uneconomical capacities in road, power, etc. Companies bid irrationally. Now that has gone away. So this lull in building new capacities will mean that existing players will make more money and that will spur creation of new capacities a few months down the road. A lull in hyper competition is not such a bad thing.
All things considered, I am of the clear view that a few years from now the world will laud India's economic growth model, and lambast China's.
That will be the day I will really be worried. Till then, India's stock market has a nice ride ahead. Sit tight.SHANKAR SHARMA
Vice Chairman and Joint Managing Director, First Global