Fund My Mutual Fund: India: Singh's Scale of Victory "Game Changer"

Monday, May 18, 2009

India: Singh's Scale of Victory "Game Changer"

Posted by TraderMark at 4:45 AM

A quite interesting election overnight in India - Prime Minister Singh's party really consolidated power which could pave the way for some serious capitalist waves. Why should you care? As a reader of FMMF you are ahead of the majority of the populace who has yet to realize that the rest of the world indeed matters - see how one country is pushing the price up of every commodity on Earth. Second, there is a great chance the balance of power in the coming decade(s) shifts from West to East... or better put BACK to East from West. Third, judging from the names on my Paypal donations I have a quite strong contigent of Indian Americans (thanks for the donations by the way!) By the way, one of those readers told me to short India ahead of the elections due to uncertainty- not to self: never listen to readers. ;) The Indian stock market jumped "limit up" >10% overnight.

EDIT: The benchmark Sensex index jumped 17%, or 1,306 points, to 14,272, forcing the Bombay Stock Exchange to shut down for the day. Trading had already been halted earlier, after investors pushed stocks above their daily maximum limit.

I have not touched on this since last summer since the stock market is all about the nose in front of our face instead of looking out 5-10 years, but as we bring online a few hundred million Chinese and Indians into lower "middle class" (their version of it, not ours) and out of abject poverty - the implications of this sea change will be staggering. I really don't think people are understanding what a strain this will be on natural resources... but as stock market investors, we have to think like the crowd and only worry about where things are heading the next 3-5 days or weeks. Anything past that is for intellectual types...

Via Bloomberg

Prime Minister Manmohan Singh’s electoral victory, the biggest any Indian politician has scored in two decades, may loosen political shackles that have restrained the country’s economic growth as it struggles to free half a billion people from poverty. India’s benchmark stock index soared more than 10 percent, triggering a trading halt after breaching the daily limit. The rupee rallied the most in 11 years against the dollar, gaining 2.2 percent to 48.37.
“This is an absolute game changer,” said William Nobrega, the co-author of “Riding The Indian Tiger,’ who advises U.S. companies on investing in the world’s largest democracy. “It can truly move India in a much faster pace to where it deserves to be in the global economy.” Political stability will make India a more attractive investment destination as Singh, 76, seeks the funds to stimulate Asia’s third-largest economy. “There were so many major initiatives that were sidelined,” Nobrega said. “It will have a phenomenal boost on the Indian economy this year and next.”
Singh’s ruling Congress party will start forming a new government today, without needing the support of communist lawmakers who frustrated plans to entice foreign investment and sell state-owned companies in his first five-year term. The ruling Congress party won its most seats since 1991 in the election, which concluded May 16. Congress and its allies won 260 of the 541 lower-house seats for which results have been declared. Congress alone will have 205 lawmakers, 60 more than in 2004 and almost twice as many as the opposition Bharatiya Janata Party.
The main communist party, Singh’s partner in the last administration, won only 16 seats, less than the 43 they gained in the last election. The communists, who resisted increased foreign ownership of insurers and any outside investment in retailing, tried to bring down the government last July over a civil nuclear energy accord with the U.S.
Gross domestic product has risen more than four times since 1991, when Singh, then finance minister, abandoned Soviet-style state planning and introduced free-market measures. He cut red tape, removed state-enforced production caps on steel and cement makers, and allowed overseas companies such as Ford Motor Co. to set up Indian operations.
India received about $38 billion of foreign direct investments last year, about a fifth of the flows that went to neighboring China, which opened its economy 13 years earlier. Investments into India have been constrained by an unreliable power supply as well as choked roads and railways.

Now, I am not saying it will be easy, or fast - but in a country where so many still live without electricity; try to think where things could be in 10, 20 years. Meanwhile we are combating this modernization (and ensuing stress on all natural resources) by "turning off light bulbs one extra hour a day". Just moving a couple hundred million people from "abject poverty" up to "quite poor" in Chindia will cause a lot of strain to the semblance of supply / demand dynamics. But I guess we'll Kick the Can on that discussion for another 10+ years since this is the status quo in America as a solution to all problems. "KTC"

India, whose international political ambitions include a permanent seat on the United Nations Security Council, wants to maintain annual growth rates in excess of 8 percent for two decades to reduce poverty. About 231 million Indians are undernourished, more than in Sub-Saharan Africa, according to the Food & Agriculture Organization. The World Bank estimates 41.6 percent of Indians live on less than $1.25 a day. More than three-fifths of Indians live in the countryside.