Barron's: Why India Won't Rebound Soon

Notwithstanding the recently disclosed Indian "Enron" - Satyam (SAY), I will be curious to see if India has any outperformance in 2009 - if not stock market wise (since hedge funds apparently make no differentiation between any emerging market) - at least economically.

Always have to look at both sides of the table... Barron's is not very optimistic (neither are many of our readers) on India despite the same measures the US is doing; government intervention en masse. Aha! It will work here (USA! USA! USA!), but not overseas... I love narcissism. Just hard for me to be as bearish on a country where the elite 0.01% have not convinced everyone that regulation is so evil - even when their dogma brings epic bubbles and crashes every 4-6 years now [Dec 28: New York Times - How India Avoided the Crisis] and a place where American corporations are quitely sending more and more jobs, and not just IT anymore folk - we're cutting financial services in NYC but not India [Aug 15: New York Times - Cost Cutting in India but a Boom in India] Shhhh! Don't tell anyone - the same companies who gutted our financial system and are getting American tax dollars by the bucket are moving well paying (read: expensive) US jobs overseas by the thousands - and have been for a few years - shhh; just between you and I. A lot of that Wall Street research is really written by Mr. Patel or Shah now. Just keep repeating the line "it's only IT and call center jobs- nothing to worry about here" and hand over your wallet for more bailouts. Thank you for your cooperation.... oh yes, America will recover first so buy US stocks.

I am curious to see how much India can yin to the other BRIC's yang - going long Russia is effectively going long oil (and hoping the political heads do not get crazy), going long Brazil (commodities) is a proxy play on China, and going long China is ... well obvious. Hence why India will be interesting to see if it can disassociate from the rest - doubtful. HAL9000 trades them all as one country it appears... the broader ETFs for India look like every darn foreign stock - this is what truly stinks about this market - the robots simply make no differentiation from one thing to the next; it is all horde trading. I could put 50 other foreign company stock charts and overlay on these broad market Indian ETFs and they'd all look identical; no matter the individual countries or business metrics.

• FOR THOSE TEMPTED TO WADE INTO THE INDIAN STOCK MARKET with a view to making a quick killing after its massive slide, consider the advice that Punch magazine once gave a person who was about to marry: Don't. Although India's benchmark Sensex has fallen about 55% from its peak a year ago, the market is still not attractive as a short-term investment. November's terror attacks in Mumbai aren't even the half of it: The Indian economy, valuation issues and broad political uncertainty all argue for real caution.
• "Even as absolute valuations have corrected, India's relative valuations remain rich," says Ridham Desai, India Strategist at Morgan Stanley. The market's price-to-earnings multiple, based on expected earnings for the next 12 months, is 60% higher than that of emerging markets as a group. And its price-to-book ratio is a whopping 72% higher.
• India fares no better on the dividend-yield front. The roughly 2% dividend yield on the Sensex pales in comparison to what is available in some of the more advanced economies. The dividend yield for the Australian market, for example, is an eye-popping 6.5%, while most other regional markets offer yields well north of 5%.
• ...even though the Indian markets are trading at just nine times forward earnings, investors need to exercise caution in interpreting that multiple. "With all the earnings cuts that we have seen from companies, what appears cheap may not be so," he says. "We are seeing a fairly sharp slowdown in the economy, but it remains to be seen whether the markets have discounted all the bad news that is in store." (again, great irony that India is expensive at 9x forward earnings but US cheap at 15-20x forward earnings if you believe $50-$60 EPS for 2009 S&P)
• While the Indian economy, whose output is now around $1 trillion, looks likely to do well over the next two decades or so, GDP would have to more than double for market capitalization to return to its past glory without valuations being caught in bubble territory. And a doubling of output would likely require at least 10 years of growth, assuming the economy keeps growing at a 7.2% clip.
• One of the biggest reasons for the surge in the Indian equity markets was the inflow of funds from foreign institutional investors. But that luck hasn't held in the current bear market: Foreigners have pulled $20 billion from the market since the start of 2008, according to provisional data issued by the Bombay Stock Exchange.
• In its 24 years, the Sensex, now at 9,647, has held above 7,000 only for the three-and-a-half years starting in June 2005. The index's mammoth 200% gains between 2005 and early 2008 are perhaps never to be repeated again.
• A new bull market, Morgan Stanley's Desai argues, is at least 15 months away. "Even if we assume that the market has hit its bottom, previous bear markets show that the market almost always tests the previous low before a new bull market gets underway," he says. "This process of retesting took between 15 and 24 months in the previous three bear markets."
• According to Citigroup, India is more vulnerable than regional peers when it comes to external financing. Heavy current-account deficit and its debt repayments have hurt the outlook for the rupee, and the already-weakened currency leaves Indian firms that have borrowed overseas vulnerable. (but less reliant on exports than regional peers)
• Geopolitics plays a role too. Indians will choose a federal government this year, and must choose between the current party that voters have grown disenchanted with and its major contender which seems to lack a credible leader at the national level.

No position