The Bullish Indian Economy

The Indian economy which was in dire straits just a year ago is seeing lots of good news these days. Most investors had given up on the Indian economy and markets as corruption and policy paralysis had become endemic in the last 5 years of Congress party rule. High inflation, commodity prices and billion dollar scams had made retail investors run for the hills. People did not have enough disposable income to spend and jobs had become scarce. Massive scams in telecom, real estate, construction and aviation industry had led to hundreds of thousands of job losses. High interest rates and a predatory government had made Indian industry leaders look to foreign shores when considering investments. Power, capital, labor etc. all had become either too expensive or too inefficient.

However, the new government led by the BJP has done a dramatic turnaround. Despite skeptics, the new PM of India has shown an immense amount of energy and have made many small and big policy changes in just 5 months. The majority of his party has also helped in pushing reforms in defense and insurance. He has also encouraged structural reforms in sanitation and labor. Though critics still say that there have been no actual changes on the ground, even his worst critic will not be able to downplay his commitment and hard work. Sentiment has improved massively and investment/growth should be just around the corner in my view.

Factors leading towards a Bullish India

The Indian economy is also getting big tailwinds from the following factors:

a) The sharp fall in crude oil prices which contributes to more than 50% of India’s large fiscal deficit.

b) Fall in other commodity prices such as coal, iron etc which will also help India, which is a big commodity importer.

c) The new central bank governor Rajan has proved to be immensely effective in his hardline stance towards inflation. The inflation has already fallen to a 5 year low which will strongly help consumers.

d) Interest rates should go down very soon in India, given the inflation is moving down rapidly after 5-6 years of very high inflation. This will boost the infrastructure firms which were down in the dumps for a very long time.

The Indian government’s “Make in India” campaign and strong push for investment from countries like China, Japan and USA is going to see a strong jump in manufacturing in the coming years. Companies are showing a big interest given India’s massive 1.2 billion population. India is a large untapped market which companies would love to tap given the anemic growth being seen in Europe, Japan and now China. India’s low per capital income implies that given the right policies and environment it can grow at very high rates for a very long time. The Indian democracy also ensures that you can get reasonable profits from your investments unlike other countries.

India is a great market to invest in, given the current circumstances. For once I agree with the majority that India is at the cusp of a multi-year bull market.