I tend to avoid India ETFs as the country approaches an election and the terrorist siege in southern Mumbai, not far from its financial district, is another burden that will likely lead to investors sitting on the sidelines to see the broader implications of this brazen act.
India’s economy had already been slowing significantly, because of the global credit crunch and the rupee’s decline, with most economists cutting GDP growth prospects in half for 2008 and 2009. The country’s leading stock market index, the Sensex, has already been cut in half since January, as foreign investors redirected billions of dollars out of the country. This forced liquidation is likely to continue.
“Of course there will be some setbacks” related to the attacks, said Hitesh Kuvelkar, associate director at First Global, a financial research firm. Even before the attacks, First Global predicted that India’s economic growth could slow to about 6% in 2009 and less than 4% in 2010. A much bigger issue than economic growth is how India will handle the increased tension with Pakistan and the disputed Punjab region.
The recent attacks, which left more than 250 people dead, made targets of foreigners, witnesses said. The heavily armed terrorists were able to bypass security at two of India’s most expensive hotels, and it has taken India’s military several days to quell the violence, raising questions about safety in even the most exclusive locations.
But I will continue to watch valuations closely as they are being driven to historic lows. Looking ahead, at some point in the next 3-6 months could be the best entry point into India in at least a decade.