By Tim Seymour
Recall walking through the ubiquitous chain drug store near you to see the cologne shelves where the knock-off brands advertised “If you like Paco Rabanne, you’ll love ‘Paul Raven’ cologne.” Basically, it smells the same, but is a lot cheaper.
Sorry, but this is my metaphor of the day used in the context of Turkey (TUR) and India (EPI). Turkey has been a darling for local and global investors alike due to its robust domestic economy heavily reliant on the consumer.
Turkey has also passed into an age where global problems present a sweet spot for investment. Slower global growth is not an issue for Turkey as they have a diverse export market and a domestic consumption story that is booming.
Turkey has always been plagued by two primary issues:
1) They have always run a large current account deficit as they were largely unable to fund themselves internationally and had to import major amounts of commodities to fuel their economy.
2) They have had an inflation problem.
These two are obviously related and clearly have affected how policy makers had to act to keep order.
Creative and unorthodox policy has been carried out to deal with conditions particular to Turkey and their micro and macro issues.
Now see India.
India has long struggled with the social pressures on the government because of the inflationary aspects of an economy that is truly growing from within.
India is not China. India is not exporting to the world as a foundation of their economic blueprint. India is slowly reforming (painfully slow) while addressing the very unique issues they face as a country with 1.1Bn people who must be fed, clothed and housed.
India too has spent the last decade in search of greater energy independence. They, like Turkey, are now getting their wish indirectly as a bi-product of the credit and commodity bubbles bursting.
Today, India reported inflation at 4-year lows, as wholesale prices read 4.89% in April (5.45% expected).
These readings are now at 41-month lows while the economy is showing resilience. Factory output and industrial production numbers released in the last week are showing strength. If India can feel confident they have even temporary control over the inflation genie, they can adjust policy to be more accommodative and spur additional growth.
India, with real political will behind reform and the ability to be aggressive in their economic stimulation, will deliver a major boost to a stock market that is flat on the year vs. Turkey’s +15%.
India is Turkey on steroids if there is balance between growth and inflation.
A quick basket to get that exposure:
HDFC Bank Ltd (HDB)
ICICI Bank Ltd (IBN)
Tata Motors Ltd (TTM)
Wipro Ltd (WIT)
Tata Communications Ltd (TCL)