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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Investors Don’t Ignore The World’s No. 2 Stock Market India

Stock-Markets / India Apr 18, 2009 - 08:16 PM GMT

By: Uncommon_Wisdom

Stock-Markets Best Financial Markets Analysis ArticleTony Sagami writes: This should be easy for many of you. Name the two fastest-growing economies in the world.

First of all, we know who they are not. They’re not any countries in North America or Europe because both of those continents are mired in painful recessions.


Second, if you’ve been a regular reader of this column, you’ve heard me beat the drum about China’s continued strength and its globe-leading growth.

The most recent statistics showed that China’s economy is growing at a 6.5 percent annualized rate. Could you imagine the cartwheels that Fed Chairman Bernanke and President Obama would be turning if the United States were growing at that pace?

So … who is No. 2?

India.

India isn’t growing quite as fast as China, but it’s pretty darned good. The Asian Development Bank expects the Indian economy to grow by 5 percent in 2009 while the World Bank is looking for 4 percent growth.

Goldman Sachs, which has been pretty accurate about India, expects India to grow by 5.2 percent in 2009 and accelerate to more than 7 percent in 2010.

The Sensex has risen 32 percent in the last month, making it the second-best performing stock market in the world.
The Sensex has risen 32 percent in the last month, making it the second-best performing stock market in the world.

That positive economic growth has translated into stock market profits. The Bombay Stock Exchange Sensitive Index (also known as the Sensex) has risen 32 percent in the last month, making it the No. 2 performing stock market in the top 25 markets.

In case you’re curious, the Italian stock market was No. 1.

India is a market that you definitely want to pay attention to because when times are good, the Indian stock market explodes.

In October 2002, the Sensex was sitting at 2,834 points, but by January 2008, it had zoomed to 21,206. That’s a 648 percent return in less than six years.

And despite its recent rally, the Bombay Sensex is valued at only 11 times trailing earnings. To put that into perspective, the MSCI Asia-Pacific (all Asia) Index is trading at 18 times earnings.

Despite our U.S. recession, the Indian traffic lights look like they are all about to turn green.

I’ve talked a lot about the $1.9 trillion of foreign reserves that China has sitting in the bank. Well … India has a mountain of cash sitting in its piggy bank, too. India has $255 billion of cash.

Foreign Investors Are Pouring Money Back Into The Indian Markets

Foreign institutional investors are pouring money back into India. After pulling out $13.1 billion in 2008 and another $1.7 billion in the first two months of this year, big foreign institutional investors have dumped about $1 billion in Indian stocks over the past month.

The latest numbers show that the inflation rate in India fell to a three-decade low of 0.26 percent. Yup, darn near a zero percent inflation rate.

The reason that is so important is that falling inflation gives India’s central bank the flexibility to cut interest rates even though the Reserve Bank of India has already cut its key repurchase rate five times since early October and is now sitting at 5 percent.

The Indian stock market isn’t a tiny, little, backwater exchange either. It is the largest stock market in the world by sheer number of listed firms. The 133-year old Bombay Stock Exchange has 4,700 stocks and the smaller National Stock Exchange has 1,580 companies.

And you don’t have to open a brokerage account in India to invest in Indian stock. Like China and Japan, India has several companies listed on the New York Stock Exchange and the Nasdaq, such as Infosys (INFY), HDFC Bank (HDB), ICICI Bank (IBN), Patni Computer Systems (PTI), Tata Motors (TTM), and Wipro (WIT) to name a few.

If you’re more of an exchange-traded fund (ETF) investor, you could take a look at WisdomTree India Earnings (EPI) or PowerShares India (PIN).

Now, don’t rush out and buy any of those above securities without doing your homework, and as always, timing is everything when it comes to investing. Frankly, I think all of them will get cheaper if you’re patient.

India, however, is a market that you shouldn’t ignore. As I said, India is still growing very strongly, and I expect its stock market will be one of the best places to park your money in the next 5-10 years.

Best Wishes,

Tony

This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.

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