Resilient INDIA- how, why?

"It is very easy to shout fire in the crowded financial markets (for example, in
a theatre) and cause more deaths by a stampede than by the original fire. The
hype created by many analysts and economists across the world have really
created fear in the minds of investors. "

These analysts do not understand that in the end we are all participants in this economy and not mere observers or communicators and therefore it is incumbent upon us to not exaggerate the reality or draw inverse conclusions from every analysis because being bearish is the latest fashion in the financial markets.

In this environment it is clear that every piece of news can be twisted in whatever way the analyst wants, particularly with a negative view. Like if-

• RBI cut interest rates—oh, it must be because they are panicking ;
• X company announcing buy back—the promoter might be getting margin calls;
• Y Fund manager was positive on the market—she must be facing redemptions;
• India with short-term debt—no NRI will roll his bank deposit;
• Commodity costs down—end demand will be down even more;
• Low oil prices should help reduce import bill—exports could be down even more;
• Management predicting that they still grow at 15%-- they will not get it;
  

Till a year ago, high oil prices was the biggest risk for India and now low oil price reflects demand weakness and therefore a factor for worry.

Last year and a half, India had less than $200 billion of foreign exchange reserves and there were no reports saying that we had inadequate reserves which needed to be built up urgently. Now that FX reserves have fallen from $320 billion to $250 billion, economists are highlighting how we have had a record decline in FX reserves. But it is a separate matter that more than half this fall can be explained by the strength of the US dollar which has reduced the dollar value of our reserves held in other currencies.

Govt. role appreciated, how?
A year ago the govt. of India wrote off $16 billion of loans, made over the past decade or so, to more than 40 million farmers (at the rate of $400 per head) and was criticized by the whole world that economics was being sacrificed for the sake of politics.
Now everyone is asking for similar (and larger) and much more morally indefensible bailouts throughout the world.
Until a few weeks ago, investors were hoping that in the pursuit of its reform policy, the Indian government would accelerate the opening of its banking sector and insurance sector to foreign and private sector; and today all potential foreign partners are themselves seeking equity investments from their governments.

India first to turnaround, why?
Redemption is the buzz word in the equity markets across the world. If a foreign investor is really playing for the end of the ‘world as we know it’ situation, the last place he should redeem from is the Indian market. Indians (i.e, households) are the largest owners of gold in the world with their holdings estimated at more than 15000 metric tones, currently valued at $400 billion plus. All the bearish doom and gloom analysts in the world have their price target for gold at $2,500 or higher. At $2,500/ ounce of gold, Indian households stand to make a paper profit of nearly $1 trillion (which is the same size as India’s GDP). Now compare that with the total market capitalization of the Indian market of $600 billion with Indian retail ownership of $600 billion with Indian retail ownership of the market of around 20% and you can imagine why the average Indian may actually feel relatively much richer by the time the dooms day scenario comes along for the rest of the world.

The Indian markets have been mauled as badly as any other this year but have the following in their favor:

1. No bank has needed to raise any equity to remain in business or needed to be nationalized of its deposits guaranteed.
2. There has so far been no restriction on short selling in the Indian equity market—whether in financial stocks or otherwise. Although SEBI has effectively prohibited shorting via overseas borrowing of stock, foreign and domestic investors can short via the futures market.
3. There was no closure of the markets on any day whatsoever (irrespective of whether the government liked the sharp falls in the market or not, unlike in many other markets).
4. There were no government-associated funds, which were made to buy stocks in the markets to artificially support it.