Vikram Saxena

India ETFs and ETNs Are Not the Best Emerging Market Investments

"Many believe this may be due to India's greater dependency on foreign countries, whereas China and Brazil have more substantial middle classes."

Indian economy is a lot more insular and less affected by foreign countries. China had to pump its economy with a massive stimulus package to ensure that the economy does not follow exports and collapse. India had to do an order of magnitude less to get similar results, since most of the growth in India is organic and not export driven.

Much of China's stimulus has been handed out as loans, whose future performance is uncertain. Though it has created a big buzz, it is not clear whether it will result in sustainable growth, in the absence of growth in exports.

India's Strong Growth Should Continue

sooth_sayer: Have you the skyline of major Japanese cities and compared them with Indian cities. Like HK, Japan also grew vertically. Vertical growth bypasses land constraints and hence can lead to excess supply. Except for the metros, most Indian cities do not have a skyline! When it comes to housing, demographics are a key. India has the largest number of people under 25. Household formation is increasing with better economic climate, which will provide support to the real-estate market.

India: The Bear Case

The communists are out!

India Battles Rising Inflation, Lower Growth; Ratings Agencies Turn The Screw

The key of course is oil, which is the main cause of the increasing imbalance. However, the Indian equity markets are trading in mid-teens P/E to trailing earnings. Even if the growth rates come down the market is very fairly valued. There is a general apathy towards equity investing across the globe, which might be coming to an end soon and will benefit the beaten down Indian market. The confidence motion is a boost in the short term; the market is poised for a rally. And if oil continues to correct, the rally could really develop legs.

India's Strong Growth Should Continue

sooth_sayer:

Can you comment more about the Ponzi scheme? There is little or no seller financing in India; even bank led financing was a mirage less than a decade ago. Most of the money came from the unaccounted economy (black money) and transactions were conducted in all cash deals with people literally exchanging bags of cash.

As the other Vikram(Vikram12) pointed out, you also have to look at real prices versus nominal prices. The Indian Rupee has been depressed for the past two decades that shows up in pricing.

You also have to account for population density in India versus the USA. Land is relatively scarce in India and that will show up as higher premiums for homes, especially when compared to non-Metro/non-Coastal America where homes sell more on replacement value and not speculative value.

Growth in real estate prices in rapidly growing emerging economies is a not exclusive to India. Rising incomes coupled with the availability of credit, and rapid urbanization increases the value of real-estate at a much larger rate than the GDP.

Vikram12: Your comments about Gold is not easy for a non-Indian to understand. There used to plans to get the gold into circulation as capital but now that availability of capital is no longer a challenge they have been shelved. India is benefiting from the wealth effect of Gold which not many people factor in to their models.

Today's vote of confidence will be good for the equity markets. Further the recovery in the US equity markets is going to be good for equities in the emerging markets as well. And BSE is trading in mid teens of trailing P/E. Much cheaper than the US market with much better growth prospects.

India's Strong Growth Should Continue

sooth_sayer:
1. Real Estate went down in India is a very generic statement. It may have corrected in some areas where it went up very quickly but there was no nationwide bust like we are currently seeing here in the USA.

2. What we are seeing right now is a catch-up phase where the country is making up for almost 50 years of lost growth. Thanks to development in information availability, the process is getting accelerated quickly. To get a sense of the potential, India's per-capita income is about half of China's. So even if the per-capita GDP double's in ten years (about 7-8% CAGR), it will still be behind China's!

3. The current real-estate boom in India is a result of:
(i) Industrial/Urban Expansion: Agricultural land near urban centers which was once valued based on depressed agricultural prices, is now being valued in terms of the commercial value in a globally integrated economy.
(ii) Development and expansion of credit facilities: Till very recently, buying a home in India required decades of savings, since credit availability was poor. In the past decade, as the banking sector developed and made credit available which led to the growth of the sector. Of course massive white-collar job growth helped the process along.

But if you view real-estate prices on a national scale, outside the hot urban growth centers, they are nowhere near inflated. There is no nationwide bubble in real-estate or asset pricing.

4. There is going to be massive infrastructure development in India in the next decade which not only is necessary to sustain growth, but like in China will likely be a driver of economic growth. There is enough private sector capital available to drive that since the economics are so well stacked up in the favor of investors. Gradually the political posturing which constrained infrastructure growth is also taking a back seat, with investors figuring out how to manage the politicians.

I do agree with some posters that the author could have organized his thoughts better and made a more cogent case. however many of the comments here are completely off-base. There is uncertainty in India about the fate of the Central (Federal Government) but if the past offers any clue, there are going to be no negative policy changes; in fact the lull might allow some tougher measures to go the legislature.

India's Strong Growth Should Continue

DragonSlayer: Taiwan and S. Korea are not emerging markets; so comparing the growth rates in those countries to India is like comparing apples to oranges. Taiwan's economy is growing at around 4% rate; S. Korea is expected to be under 5% this year. Further these economies are much more strongly coupled to the US and the Chinese economy than the Indian economy and are likely to suffer more pressure from any problems there. The Indian economy is primarily an internal growth story and less likely to be affected by the problems in the US and anything which might happen in China after the Olympics. Would you compare China's growth rate to ROC?

WefWef: The Indian financial market use lacs (0.1M) and crores (10M) and the author chose to use them since he is based in India. SA is read outside the USA also, and investors in India are well aware of these terms. You could write to SA editors to convert these numbers to the US system.