Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Silver Market - 22nd Oct 20
Goldman Sachs Likes Silver; Trump Wants Even More Stimulus - 22nd Oct 20
Hacking Wall Street to Close the Wealth Gap - 22nd Oct 20
Natural Gas/UNG Stepping GAP Patterns Suggest Pending Upside Breakout - 22nd Oct 20 -
NVIDIA CANCELS RTX 3070 16b RTX 3080 20gb GPU's Due to GDDR6X Memory Supply Issues - 22nd Oct 20
Zafira B Leaking Water Under Car - 22nd Oct 20
The Copper/Gold Ratio Would Change the Macro - 21st Oct 20
Are We Entering Stagflation That Will Boost Gold Price - 21st Oct 20
Crude Oil Price Stalls In Resistance Zone - 21st Oct 20
High-Profile Billionaire Gives Urgent Message to Stock Investors - 21st Oct 20
What's it Like to be a Budgie - Unique in a Cage 4K VR 360 - 21st Oct 20
Auto Trading: A Beginner Guide to Automation in Forex - 21st Oct 20
Gold Price Trend Forecast into 2021, Is Intel Dying?, Can Trump Win 2020? - 20th Oct 20
Gold Asks Where Is The Inflation - 20th Oct 20
Last Chance for this FREE Online Trading Course Worth $129 value - 20th Oct 20
More Short-term Stock Market Weakness Ahead - 20th Oct 20
Dell S3220DGF 32 Inch Curved Gaming Monitor Unboxing and Stand Assembly and Range of Movement - 20th Oct 20
Best Retail POS Software In Australia - 20th Oct 20
From Recession to an Ever-Deeper One - 19th Oct 20
Wales Closes Border With England, Stranded Motorists on Severn Bridge? Covid-19 Police Road Blocks - 19th Oct 20
Commodity Bull Market Cycle Starts with Euro and Dollar Trend Changes - 19th Oct 20
Stock Market Melt-Up Triggered a Short Squeeze In The NASDAQ and a Utilities Breakout - 19th Oct 20
Silver is Like Gold on Steroids - 19th Oct 20
Countdown to Election Mediocrity: Why Gold and Silver Can Protect Your Wealth - 19th Oct 20
“Hypergrowth” Is Spilling Into the Stock Market Like Never Before - 19th Oct 20
Is Oculus Quest 2 Good Upgrade for Samsung Gear VR Users? - 19th Oct 20
Low US Dollar Risky for Gold - 17th Oct 20
US 2020 Election: Are American's ready for Trump 2nd Term Twilight Zone Presidency? - 17th Oct 20
Custom Ryzen 5950x, 5900x, 5800x , RTX 3080, 3070 64gb DDR4 Gaming PC System Build Specs - 17th Oct 20
Gold Jumps above $1,900 Again - 16th Oct 20
US Economic Recovery Is in Need of Some Rescue - 16th Oct 20
Why You Should Focus on Growth Stocks Today - 16th Oct 20
Why Now is BEST Time to Upgrade Your PC System for Years - Ryzen 5000 CPUs, Nvidia RTX 3000 GPU's - 16th Oct 20
Beware of Trump’s October (November?) Election Surprise - 15th Oct 20
Stock Market SPY Retesting Critical Resistance From Fibonacci Price Amplitude Arc - 15th Oct 20
Fed Chairman Begs Congress to Stimulate Beleaguered US Economy - 15th Oct 20
Is Gold Market Going Back Into the 1970s? - 15th Oct 20
Things you Should know before Trade Cryptos - 15th Oct 20
Gold and Silver Price Ready For Another Rally Attempt - 14th Oct 20
Do Low Interest Rates Mean Higher Stocks? Not so Fast… - 14th Oct 20
US Debt Is Going Up but Leaving GDP Behind - 14th Oct 20
Dell S3220DGF 31.5 Inch VA Gaming Monitor Amazon Prime Day Bargain Price! But WIll it Get Delivered? - 14th Oct 20
Karcher K7 Pressure Washer Amazon Prime Day Bargain 51% Discount! - 14th Oct 20
Top Strategies Day Traders Adopt - 14th Oct 20
AMD is KILLING Intel as Ryzen Zen 3 Takes Gaming Crown, AMD Set to Achieve CPU Market Dominance - 13th Oct 20
Amazon Prime Day Real or Fake Sales to Get Rid of Dead Stock? - 13th Oct 20
Stock Market Short-term Top Expected - 13th Oct 20
Fun Stuff to Do with a Budgie or Parakeet, a Child's Best Pet Bird Friend - 13th Oct 20
Who Will Win the Race to Open a Casino in Japan? - 13th Oct 20
Fear Grips Stock Market Short-Sellers -- What to Make of It - 12th Oct 20
For Some Remote Workers, It Pays to Stay Home… If Home Stays Local - 12th Oct 20
A Big Move In Silver: Watch The Currency Markets - 12th Oct 20
Precious Metals and Commodities Comprehensive - 11th Oct 20
The Election Does Not Matter, Stick With Stock Winners Like Clean Energy - 11th Oct 20
Gold Stocks Are Cheap, But Not for Long - 11th Oct 20
Gold Miners Ready to Fall Further - 10th Oct 29
What Happens When the Stumble-Through Economy Stalls - 10th Oct 29
This Is What The Stock Market Is Saying About Trump’s Re-Election - 10th Oct 29
Here Is Everything You Must Know About Insolvency - 10th Oct 29
Sheffield Coronavirus Warning - UK Heading for Higher Covid-19 Infections than April Peak! - 10th Oct 29
Q2 Was Disastrous. But What’s Next for the US Economy – and Gold? - 9th Oct 20
Q4 Market Forecast: How to Invest in a World Awash in Debt - 9th Oct 20
A complete paradigm shift will make gold the generational trade - 9th Oct 20
Why You Should Look for Stocks Climbing Out of a “Big Base” - 9th Oct 20
UK Coronavirus Pandemic Wave 2 - Daily Covid-19 Positive Test Cases Forecast - 9th Oct 20
Ryzen ZEN 3: The Final Nail in Intel's Coffin! Cinebench Scores 5300x, 5600x, 5800x, 5900x 5950x - 9th Oct 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Investing in India: First Comes the Pain, Then Come the Gains

Stock-Markets / India Apr 14, 2011 - 08:29 AM GMT

By: Money_Morning

Stock-Markets

Best Financial Markets Analysis ArticleMartin Hutchinson writes: As investments go, India has really great long-term prospects. No doubt about it.

Indeed, India has enjoyed very decent growth rates for the last decade, pulling many of its people out of poverty in the process.


But investing in India can be tricky.

Allow me to show you why.

Number Games
For instance, the budget plan that India Finance Minister Pranab Mukherjee presented on Feb. 28 demonstrated - yet again - that the country is being held back by its government, which cannot break free of its appalling 1950s-era state socialism.

At the same time, the India stock market is trading at an exalted valuation - based entirely on the country's short-term potential.

The bottom line: If you are interested in investing in India, my advice is to hold off - at least until the inevitable crash has brought share prices down to take account of India's short-term problems.

At first blush, India Finance Minister Mukherjee's budget looks plausible. For the fiscal year that ended in March, it claims to have reduced the fiscal deficit from 5.5% of gross domestic product (GDP) to 5.1%. And for the current fiscal year, the spending plan purports to further reduce it - all the way down to 4.6% of GDP.

But those seemingly bullish figures are "warped" by two factors.

First, last September's telecom-spectrum auctions generated a $23 billion revenue windfall - without which last year's deficit would actually have been 6.4% of GDP. That's a substantial overshoot from the February 2010 budget, in a year in which record economic growth has poured revenue into the Indian treasury.

Second, the GDP figure itself increased by more than 20% in India's just-concluded fiscal year, largely because of a relentless inflation rate that's in excess of 10%.

Since India's interest rates are in the 6% to 8% range, the Indian government has made money by borrowing aggressively in the markets at rates that, in real terms, are below 0.00%.

The Looming End to a Boom?
India's growth rates have been very satisfactory for the last decade, and have brought hundreds of millions of people out of poverty. However, this has also unleashed a torrent of tax revenue, which flowed into India's Treasury.

Unfortunately, instead of using this "found money" to reduce the fiscal deficit, India spent it.

Now, facing a major inflation problem as well as capacity constraints, India is close to the top of an unsustainable boom. In this situation, the budget should be running a substantial surplus - not a deficit of 4% to 5% of GDP.

Slightly more than a year ago - in March 2010, to be exact - India's public debt on a consolidated basis was a record 74% of GDP. That debt-to-GDP ratio has been reduced since then, but only because of the low interest rates and the gigantic increase in nominal GDP.

This year's budget contains still more spending - in fact, 18% more than last year. Some of the increase is quite sensible - a new food-subsidy program to feed the poorest makes some sense, especially when food prices have rocketed up.

However, rather than adding the new program onto all the other subsidies, it should have been funded by reducing India's fuel-subsidy programs, which are gigantically expensive with oil at $100 per barrel. Those are politically popular - but they are transfers to the middle class, not the poor.

At some point, India's economic growth is going to slow - maybe as a result of the interest-rate increases necessary to stop inflation spiraling into hyperinflation. At that point, the revenue bonanza for the Indian government will dry up, and the budget deficit will spiral out of control.

The Indian government should know this is possible: It happened to Britain, when former Prime Minister Gordon Brown, another product of 1950s socialism, ran large budget deficits (partly disguised by dodgy accounting) at the top of an economic boom in 2006-07.

Britain will be paying for the fiscal collapse that followed for the next decade - but unlike India, Britain is a relatively rich country. When the Indian budget deficit explodes, the costs to the Indian people will be all too real, and the resulting financial crisis will plunge millions of Indians back into poverty.

A Look Ahead
In the long run, India has fantastic potential; the 8% growth rates of the last decade have been real and India's rapid integration into the world economy will ensure that the growth rates continue.

Before that happens, however, India's government must be reformed - stripped of its corruption, and of its 1950s Socialism. That process will be politically painful and will meet with huge resistance from the Congress party - and from other defenders of the status quo. Fortunately, as a democracy, India has in the past shown that its electorate can demand reform.

If you are an investor with an interest in investing in India, you can do no right now besides standing back to wait.

But be prepared: At some point, the India stock market will be down - way down, perhaps as much as 50% to 70% from its recent highs.

When that happens, ignore the cries of warning from those who have lost money, and plunge in. You will be well rewarded.

Action to Take: India has long been viewed as one of the world's most promising emerging-market economies. Little wonder the interest in investing in India is always so high.

But here's the problem. After years of financial mismanagement, which includes a lack of resolve for making the needed reforms, the India stock market is cruising for a bruising - and a pasting of as much as 50% or even 70% from recent highs.

For those interested in investing in India, now is the time to stand clear. Wait for that correction - and when it happens, ignore the cries of warning from those who have lost money, and plunge in. You will be well rewarded.

[Editor's Note: Earthquakes and nuclear meltdowns in Japan, soaring food-and-energy prices, a numbing federal debt load and savings-account rates that make your mattress an alluring place to stuff your money ... it's enough to make the typical investor surrender.

Not so fast.

There is a way for you to double your money in the next 12 months - and you don't have to hire a Swiss banker to do it. All you need is the right blend of high-yielding investments. You can find out the details by clicking here. Or you can sign up for The Money Map Report, which each month details the very best profit opportunities you'll find anywhere.]

Source : http://moneymorning.com/2011/04/14/...

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules