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Nicholas Pardini
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Nicholas Pardini is the managing partner of the equity long/short hedge fund Nomadic Capital Partners. The fund specializes in commodities, emerging market consumer equities, and equities in the the global technology sector. His research and live trade updates are also found on his investment... More
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Nomadic Capital Partners
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The Pardini Report
My book:
The Definitive Guide to Emerging Market Currencies
  • Reasons to be Bearish on India Part I: Overpopulation and Poverty 2 comments
    Jun 6, 2011 5:44 PM | about stocks: IFN, IPN, INDY, TTM, INFY
     Since liberalization policies were enacted in 1991, India has become one of the world's fastest growing economies. It development of a middle class, success of the Indian diaspora, and its large consumer base have made India popular for bullish investors. However, the rosy story of economic growth has covered up the inherent structural problems that limit long term success of the country. India will under perform other emerging markets due to overpopulation, religious and ethnic strife, high levels of poverty, geopolitical conflict, and an inefficient government that has not been able to address these structural problems. This first part will address the strains of poverty and overpopulation on the country in the forms of environmental damage, severe supply shortages of basic needs, and other constraints weaken India's long term economic success.

     The first issue that India is overpopulation and the effects this has on the economic health of the country. With over 1.2 billion people, India is the second largest nation in terms but population. However, it landmass is only slightly larger than one third of the Unites States while having approximately four times as many people. Overpopulation has put huge strains on India. Despite, rapid economic growth unemployment remains high with a 10.8% unemployment rate on average for 2011. The ten year average for the unemployment rate in India is 8.8% so this is not a solely a product of the current financial crisis.
     
     Abuse of the land from subsistence farming and industrial pollution has made India on the verge of becoming a large net food importer. Pollution of major India rivers such as the Ganges from garbage generated from slums and industrial waste have worsened India's water shortages. Combining pollution and overcrowding will make India a water stressed country no later than 2030. Energy shortages due to overpopulation are also a concern as the country has India does not produce nearly enough oil to meet the growing demands from new drivers and electricity users in India.  Overall, India cannot support a population this large with a reasonable standard of living and the effects of this permeate across society.

     Despite the growth of wealth of the middle and upper classes in the country, India's enormous amounts of poverty is an enormous anchor to the economy that will slow down growth significantly. 75% of India's population earns less than $2 per day, and 26% of the country's population is illiterate. These people cannot afford basic shelter and enough food to maintain nutrition. With food prices increasing, the working poor of India who spend north of 50% of their budget on food may be squeezed back into poverty. As seen in Egypt, food shortages and hunger are strong motivations for civil unrest.

     Poverty's side effects are numerous. First, vagrancy and the growth of slums spread pollution and disease. The excess trash generated from a filthy lifestyle and the disposable ingredients of their shelter adds to severe air and water pollution problems in India. In addition India along with sub- Saharan Africa places among the most disease ridden places in the world.  Malaria, typhoid fever, Dengue fever, polio, measles, hepatitis A and E, plague, and many other highly infectous diseases run rampant in India. Abject poverty spreads this due to a lack of access to vaccines and unsanitary living conditions. Urination and defecation on the streets in major cities is common place and many religious centers require attendance to be barefoot which can add to the spread of disease. In addition, low incomes strap the government of tax dollars needed to institute environmental reforms and infrastructure improvements needed to clean up the country.

     So what does this mean for international investors? It means to avoid investing in India or shorting the country's index ETFs. Buying the INDZ is two times levered short of India that can work well. However, levered ETFs are more for short term moves. For a longer term short, short sell the leading India indexes INDY or PIN. Overall, overpopulation and India are two major (but not the only) anchors to the Indian growth story.

    For part two go to my website contrarianlifestyle.com


    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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Comments (2)
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  • kmat123
    , contributor
    Comments (4) | Send Message
     
    The poor make no difference to the performance of the stock market. The middle class is growing and that's what counts. While the conditions look bad, India is in a secular Bull Market as opposed to most Western economies. Good luck shorting India. Soon you'll lose your shirt as well.
    10 Jul 2011, 02:21 AM Reply Like
  • Siddharthamithu
    , contributor
    Comment (1) | Send Message
     
    Most of the communities in the entire Indian sub-continent(such as Bengali) succumbed in ‘Culture of Poverty'(Oscar Lewis), irrespective of class or economic strata, lives in pavement or apartment. Nobody is genuinely regret ed or ashamed of the deep-rooted corruption, decaying general quality of life, worst Politico-administrative system, weak mother language, continuous consumption of common social space (mental as well as physical, both). We are becoming fathers & mothers only by self-procreation, mindlessly & blindfold(supported by some lame excuses). Simply depriving their(the children) fundamental rights of a decent, caring society, fearless & dignified living. Do not ever look for any other positive alternative behaviour(values) to perform human way of parenthood, i.e. deliberately co-parenting children those are born out of ignorance, extreme poverty. It seems that all of us are being driven only by the very animal instinct. If the Bengali people ever be able to bring that genuine freedom (from vicious cycle of ‘poverty’) in their own life/attitude, involve themselves in ‘Production of (social) Space’ (Henri Lefebvre), initiate a movement by heart, an intense attachment with the society at large is very much required - one different pathway has to create, decent & rich Politics will definitely come up. – Siddhartha Bandyopadhyay.
    25 Sep 2011, 02:49 PM Reply Like
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