By Tim Seymour
The Indian stock market has gone from last year's record peaks to become the worst performer in the BRIC group. Is this a buying opportunity or a broken economy?
India's central bank raised interest rates today for the ninth time in a year in a desperate effort to combat inflation that it predicts will stay around 9% for the rest of the year.
Thanks to the rate hike fever, the Mumbai stock market has been the slumping to the point where it could easily become a buying opportunity some time soon — just not today.
The issue is that the governor of the Reserve Bank of India remains extremely outspoken about fighting the country's inflation problems. In that light, today's 50 basis-point rate hike was not a huge shock, but it starts to raise questions about just how high rates can go before inflation stops rising.
We might be waiting into the third or even fourth quarter for that to happen. When it does, that will be the time to buy India.
Meanwhile, you can selectively pick some of the blue-chip stocks — even though rates are not done tightening yet — and hang on.
Compare the BSE to the SPY over the last five years:
Two things really stand out. First, the BSE has outperformed by something like 50%. Does that fully reflect the long-term evolution of India as a vibrant economy of 1 billion people?
No. Per capita income and car sales in India are still racing upward by 20% to 25% a year and banks are still rolling out credit to match. This is still a fantastic place, in some ways better than China.
Second, the moves in India mimic and accentuate the moves on Wall Street. When U.S. stocks correct, Mumbai contracts to a greater extent — and the reverse is true on the bull side.
Remember: when food prices pull back, it is time to buy into PIN or your favorite Indian ETF. For now, watch and wait.