Eddy Elfenbein submits: When the stock markets in Asia got slammed recently, the market in India was particularly hard hit. The major index there, the Sensex [^BSESN], dropped 471 points, which is a fall of 3.66%. The index has now lost 2,400 points in the last two weeks.
Over the last four years, the Sensex has risen 400%. But now the economy is overheating, and government is starting to lose control of inflation. Are you ready for the latest plan to fight rising wheat and rice prices? The government has banned futures trading for wheat and rice. Oh dear lord.
India is the second-largest producer of wheat and rice, so if you see the price of naan go up, you’ll know who to blame. It’s as if the government read a history of the Nixon Administration, got to the part about their economic policies and said, “Hey, let’s try that!” The government has raised taxes. The central bank has raised interest rates. The current accounts situation is bad and getting worse. As a proportion of the economy, India’s deficit is twice that of the United States. Plus, the country carries a huge debt. There’s an old phrase that the market “climbs a wall of worry,” but in India, the market has charged up a wall of ignorance.
I admire many things about the Indian economy. I recently profiled Cognizant Technology Solutions (CTSH), which is a New Jersey-based company, but a leading outsourcer to India. The company has had stunning results over the past few years. Coincidentally, Cognizant rang the opening bell from India.
But as far as the Indian stock market goes, I think things will soon get much worse.