2008 and beyond: India Stock market

Saturday, October 04, 2008

A few facts (government statistics): Inflation 12.5% and rising, Interest rates for prime customers 12% and rising, GDP 8.5% and falling, minority government with election less than six months away, markets trading at 16 times earnings.

These indicators are a recipe for a sizeable market correction in India. Globally, economies are under stress in most deveopled countries led by the United States. Naturally, export oriented economies in the developing world will contract. China and India need to grow drmatically to take some of the consuming stress off the United states. While China may be getting close to emerging as a consuming nation its culture is a constraint. In India, the culture to consume is present but development is a decade behind China. Brazil and Russia continue to be wild cards.

The intervening period will be economically painful and extremely volatile. Look for the Indian stock market to correct by a further 30% over the next year…unfortunately, this recovery from the downturn will be slow as domestic mutual fund investors see erosion in their portfolios and prefer fixed income alternatives for new monies.

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