With inflation ostensibly easing, is this the time to really load up on India?
The Economic Time in India
India's Economic Time is characterized by an:
• excess supply of money [ESM], and an
• excess demand for goods [EDG]
That EDG has been fueling growth. According to The Economist of 9th June 2007, economic growth was up by 9.4% during the last fiscal year - the fastest in 18 years. JP Morgan reckons that 1Q07 growth accelerated to 11.4%.
Despite such strong growth, however, wholesale prices (which are what policy makers look at) are slowing down. In January inflation stood at 6.7%, and by May, it had decelerated by 24%, to 5.1% - which is near the Reserve Bank of India's (RBI's) target rate of 5% for 2007/8.
Since January 2006 the RBI has increased the overnight lending rate by 150 basis points, to 7.75%. And since March, the RBI has stopped trying to hold down any appreciation of the rupee. By trying to counter any rupee strength, the RBI was selling rupee, thus expanding the money supply and thus the ESM. Newer measures to dent the rupee's strength: in April, the government allowed Indian firms to make more overseas acquisitions, and it also "...raised the ceiling for overseas investment to three times an Indian acquirer's net worth, from two times."
The Economist argues that the place is overheating - despite less upward pressure on wholesale prices:
• lending is growing by 28%
• house prices are soaring, and
• skilled workers' wages are rising by 15%
How to Make Money Off This Idea
Our view: keep riding the bull. First, there is a political mandate to keep growing. Secondly, inflation could be eased by doing away with transport and demand bottlenecks.
• Keep buying India through ETFs or otherwise.