India's Growth Story Interrupted

The main stock market index in India, called the Sensex, plunged 606 points to close below the psychologically important level of 10,000 at 9975 Friday (Oct 17th). After reaching a peak of 21,200 in January, the index has fallen by 53% in just nine months.

Similar to the other three BRIC countries, India rode the wave up during the past few years and now the market has been hit hard as the commodity-driven economies have crashed. Foreign investors are pulling out their investments from Indian companies on a daily basis. Out of a total market cap of $680B for the entire market, foreigners have invested about $55B. Spooked by the crash in Sensex and markets worldwide, local investors are getting out as well. The theory that somehow India was decoupled from other markets has been put to rest.

The last time Sensex saw the below 10,000 level was in July 2006. The P/E of the Sensex has come down to 12.6 from 28.5 back in January. While the main index has fallen 53% year-to-date this year, some stocks have fared even worse. The following table lists the Indian ADR stocks traded in the US and their performance:

Indian Stocks Year-To-Date Change

Company:	Ticker	Year-to-Date Change	Sector
Dr. Reddys Laboratories	RDY	-51.65%	Pharma & Biotech
HDFC Bank	HDB	-49.80%	Banks
ICICI Bank	IBN	-73.80%	Banks
Infosys Technologies	INFY	-42.77%	Software&ComputerSvc
Mahanagar Telephone Nigam	MTE	-69.13%	Fixed Line Telecom.
Patni Computer Systems	PTI	-63.74%	Software&ComputerSvc
Rediff.com India	REDF	-74.24%	Software&ComputerSvc
Satyam Computer Services	SAY	-46.15%	Software&ComputerSvc
SIFY	SIFY	-70.27%	Software & ComputerSvc
Sterlite Industries	SLT	-79.59%	Indust. Metals& Mining
Tata Communications	TCL	-52.20%	Fixed Line Telecom.
Tata Motors	TTM	-70.36%	Industrial Engineer.
Wipro	WIT	-44.07%	Software & ComputerSvc
WNS Holdings	WNS	-51.80%	Support Services

Chart
Click on image to enlarge

As seen in the above chart, some of the stocks like IBN, TM are down over 70%. IT services stocks like SAY, WIT, INFY seem to be holding out well now. But they may face tough times if US companies reduce or cancel off-shoring projects.

Due to domestic and overseas market conditions, the index may take some time before finding a stable level. While in the long-term “The Incredible India Growth Story” may be intact, in the short-term it has been interrupted.

Comments

[NOWHEREMAN:]

Since when has stock market weakness meant economic weakness?

Old Wall Street Fact, Wall Street Anticipates about twice as many recessions as actually occur. Point of Fact, 2 Negative Back to Back quarters in GDP are required for the Definition of a Recession.

India will not meet that definition, neither will China. Slowdowns, yes. Recession, No.

The declines in stock prices in India are Reflective of the Forced Hedge Fund and Mutual Fund selling due to redemptions not to actual economic conditions. How long this is the new norm, no one knows.

2008 Oct 19 11:02 AM

[notsosmart:]

there no decoupling from the US at this time.in my opinion(i have no agenda) the BRIC will not lead for some time to come.

2008 Oct 19 11:29 AM

[Urbane Gori...:]

This is an Oct 13, 2008 interview and 10 minute video with Louise Yamada. She's been pretty prescient regarding the market. Everything from calling the last few years bull market, to our market top, and subsequent drop past 10,000 in the DOW. She has some interesting info on the DOW, the 'nifty', gold and oil..... I have no real interest in India (aside from trying to figure out why they aren't buying more coal right now, what with their shortages.. )... Anyway.. If you are, then it's worth a look:

news.moneycontrol.com/...

.... Just thinking about it, SeekingAlpha doesn't like https.... Google this if the http is truncated:

Nifty may touch 2,800 if 3K breaks: Louise Yamada

at Moneycontrol.com

jegan ;-)

2008 Oct 19 06:34 PM

[andyn:]

India will actually benefit with the crash in commodities since its a net importer.
Also, its internal markets are what drives its economy to a large extent.

Contrast that with China which depends on exports esp to the US and Brazil/Russia which are commodity plays.

So clubbing all of them as a BRIC is wrong and a astute investor will take advantage of this forced selling in the Indian markets.

Case in point - IBN which has been murdered based on rumors it had exposure to toxic US financial instruments.
Its a great way to play India and can be picked up here below $20.

2008 Oct 20 10:37 AM

[Stone Fox C...:]

agree. The BRICs of Brazil and Russia benefit from strong commodities while India benefits from lower commodities. To some extent though, they all trade a like though. India should come thru this the least impacted and should be helped by much lower inflation. IBN continues to be a huge long term play on Indian growth and its ability to use cheap Indian operations to garner deposits outside India.

2008 Nov 05 01:44 PM