Apr 1 2014, 4:05pm CDT | by Forbes
“Since the U.S. Federal Reserve began talking about tapering its bond purchases last year, investors have been forced to separate the emerging-market sheep — those with well-managed economies — from the goats, with their poorly run economies,” Shilling wrote on March 24. One of the goats was India, along with the rest of the so-called Fragile Five, which includes Brazil, Indonesia, and South Africa.
The big emerging markets have gone from being heralded as the BRICs, the drivers of new global growth, to the Fragile Five. Only one country has been singled out by analysts, and that’s India. China’s had its fair share of scorn heaped on it, with calls for a hard landing and now an impending credit bubble. Russia has always been hated as the Wild East and nothing but an oil and gas play. But no one has given either of these a pet name like India. Forget the elephants and the goats, India has definitely been one of the biggest let downs for BRIC investors. Last year, only Brazil performed worse. And no one’s called it a name yet.
According to Shilling, all of these goats have “growing current account deficits, weak currencies, serious inflation and falling stock markets.”
He must have glanced over India this year. India’s current account deficit in March has shrunk to less than 1% of GDP and the rupee has appreciated more than 10% since Raghuram Rajan was named Reserve Bank Chairman last September.
Inflation is still a problem at 8% in February, but Rajan is addressing this. The markets love this guy, and are actually fairly bullish on the prospect of a National Democratic Alliance leading country following this year’s elections, scheduled for the next two months.
India’s stock markets are closing at all-time highs.
“Dare I say it? India is experiencing a bull market,” says Peter Kohli, CEO of emerging market specialist DMS Funds in Leesport, Pa. Kohli doesn’t think India’s a goat, or a gasping elephant, a term given it by an analyst at HSBC in late 2012.
“I’ve been a great supporter of investing in India when most people thought I was nuts, or…incapable of distinguishing a sheep from a goat,” he says. The DMS India Mid-Cap Index Fund (DAIMX) is up 6.2% year-to-date, beating the S&P 500. Their India Bank Index Fund (DAIBX) is up 7.29%.
India’s economy has slowed. It’s GDP growth rate is just around 5% when it was averaging above 9% this past decade. The slump in infrastructure and corporate investment has been the single biggest contributor to India’s recent growth slowdown, according to analysis by India-based economists for the International Monetary Fund, Volodymyr Tulin and Rahul Anand.
India’s investment growth, averaging above 12% during the last decade, fell to less than 1% over the past two years. Many investment projects have been delayed or outright shelved, with companies complaining about high inflation, high interest rates, and policy paralysis in New Delhi.
“With India, the single word that comes to mind to characterize the current experience is volatility,” says Jeremy Schwartz, Director of Research at Wisdom Tree, an exchange traded fund company in New York. “This equity market, at least from our perspective in the U.S., has been driven less by the fundamentals of the underlying stocks and more by macroeconomic sentiment regarding either India itself or broader emerging markets,” he writes in a blog post on Monday.
Schwartz points out five positives for this billy goat in the world’s largest democracy. First is the obvious, the market’s love for Rajan. The other is also Rajan related– less heat from inflation. It was double digits not too long ago, remember. Other positives include a better current account deficit, now cut in half from where it was in 2013. Government spending has been reduced, and now the fiscal deficit is 4.6% of GDP opposed to consensus estimates of 4.8%. And lastly, Narendra Modi and his opposition Bharatiya Janata Party (BJP) looking primed to take over the top spot in India’s government./>/>
“A growing number of strategists and business leaders feel that the prospects for change under the BJP could inject an immediate boost to investor confidence,” says Schwarz. BJP is part of the National Democratic Alliance of political parties. “The confidence is likely to be extremely supportive of the rupee and rupee-denominated assets.”
Bye-bye black sheep.
Source: Forbes Business
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