Skip to main content

Global Financial Crisis - A win win situation for India

A win win situation:

Essentially there is no negative side to the global financial crisisfor India. One of India's largest expense is energy - oil, naturalgas. 70% of its energy is being imported. With the financialcrisis, these commodities that India is always in a dire need of, are trading at 26% of their original prices. That's a savings of 74% putting a significantly lower pressure on the Current Accountof India for FY09.

Inflation, another huge factor that was putting pressure on the economically weaker Indians is now decreasing at a fast pace. The current inflation has dropped from a range of 7%-8% to 2%-3%. India'sproductivity is still increasing, jobs are being created in most sectors adding to the GDP figures. The reason for that is simple, India has a good mix of state owned corporations and priviately owned corporations which are competing with each other in the domestic market.

An example of this is State Bank of India, which as the name suggests is a state owned bank, is competing with private banks such as ICICI. This is causing Indian banking system to become more efficient than its foreign couterparts. Infact some foreign banks such as those from Canada, will need 10 years to reach the same level of efficiency as Indian banks.

Surprisingly in the IT outsourcing sector, companies such asInfosys are looking to hire more graduates this year to higher meet demand. Other IT majors such as Tata Consulting Services (TCS) are baggingnew deals in this environment where their biggest selling point islowering costs in a market slowdown. So IT outsourcing is even hotter now than it was in the past years for Indian IT firms. To top the desert with cherry, Indian Rupee has now become cheaper for most developed nations making outsourcing to India even more tempting.

Moreover, there is a significant increase in capital investment in Indiaby Indian firms such as Tata Motors, Mahindra & Mahindra, Hindustan Aeronautics Ltd (HAL) to mention a few who are foraying in developingnew vehicles for consumers and defense needs of India. This meansthat within a few years when the development of these forays has reached its potential, India will be less dependent on foreign hardware technologies inadvertently increasing its Current Accountat a even higher level in terms of percentage with other developed nations.

Then why is the market sluggish? Harshad Mehta once said "...stock market is a by-product of the human mind..." What Harshad Mehta was trying to say in this statement was that its not just the intrinsic value of a firm that markets look at, rather market participants bring in their own perceptions. Its these perceptions that become a key factor in the valuation process of a specific investment decision and cumulatively these perceptions make or break a market.

There was meant to be a correction, and that to a major correction globally. However, the correction went over board especially when short sellers started to put downward pressure on financial stocks globally. Currently there are many firms that are trading below their book values due to this over correction.

India's capactiy for productivity has not been affected either in terms of its capital - physical or human. India still is able to grow faster than most developed and developing economies. All of these elements point towards one fact - India is going to come out of this so called "global crisis" as a winner.

Vanmeet Talwar

(These are purely my opinions based on my research on the topic, if you are looking to invest in India please consult with your broker and do not use this as your basis for investing in India. I do not take any responsibility for the performance of your investments)

Comments

Popular posts from this blog

Procastination

Hey you, when was the last time you sat down to study and in the 4th line of the first page itself you read a word...say 'mountains', and you fazed out into thinking about the last time you visited the mountains along with Pappu chachaji, and how Pappu chachaji's new SUV is so well-equipped and strong, and how someone would have thought about building a car back in the 80s, and how in the 80z things were so hard and how there was no internet, and how mankind has evolved from Indus Valley civilization to today, and how man is now reaching to Mars, and how spaceships are exploring universe, and how the universe might have started from a Big Bang, and how the last episode of Big Bang Theory was so funny... If you've gone on one such trip today, and if it was your Nth trip of the day, congratulations-  you are a procrastinator. Welcome to the club. And forget about just 'thinking' weird random shit in your head. Today, technology has built such a conduciv...

P-Notes shakes Indian Markets...but is that wrong?

Also known as Participatory Notes, P-notes by their nature are opaque to Indian regulatory bodies. This was an investment instrument which was favored by foreign institutional investors (FIIs) due to this very nature. There was a lot less scrutiny on where the funds were coming from and who the real investor was. P-notes are a cousin of exchange traded funds (ETFs) which also do not make it easy for regulators to know who is invested into it and what the source of funds are. The brokerage houses did not need to know much details on the source of funds. It was also used by high networth individuals (HNIs) who were evading taxes in their home countries such as US, Canada, UK and the like. Most of the institutions that were issuing these securities are registered in tax havens. The large players in this trade include Goldman Sachs, Morgan Stanley, CLSA, Citigroup and Merrill Lynch. So what happened, why are these P-notes starting to hit the Indian markets you ask? The answer is that now t...

The Hype about Indian markets being overvalued!

For the past few days, western media has been bombarding the issue of Indian stocks being over valued. They sometimes even go as far as suggesting that the emerging nations are just as poor at they were back in the day when the term BRIC was coined by Jim O'Neill of Goldman Sachs. Its hard to understand the logic of such suggestions by he large media houses. The very suggestion that India is exactly at the same level of poverty as it was earlier in the decade could not be much farther from the truth. From the skyline of large metropolitan cities of India to the tech-savy villagers who are now connected to the world of commodities' trading speaks volumes about the development in India. India's growth unlike some other parts of the world is to a greater degree organic. Therefore, its not artificial growth. For example, China's growth in 2009 was to a large extent artificial because most of the cash in the economy was injected by the government of China to keep the oth...