Technology, Venture Capital, Private Equity

Perspectives from an Indian VC

The time to enter Indian markets is now

Posted by Arun Uday on August 5, 2011

 I write this post as the Indian markets have plunged 1.5% yesterday with indications that they will plunge by another 3% today, the US markets have seen their worst day since the financial crisis and there is just gloom and doom all around. But, my view is that now is as good a time as any to enter the Indian markets. I have already asked my personal finance advisor (my wife :-)) to identify a good public market fund and put some money to work. And the reason for my bullishness is as follows.
As an overarching theme, as I have written before and plan to elaborate further in future posts, my view is that the next phase of the global economy will be dictated by commodity prices. And amongst all challenges that emerging economies like India and China face, it is access to resources and the price they will have to cough up for them that will determine if they grow at a CAGR of 8% versus 5% in the next 10-20 years. Given this backdrop and the intense competition for a limited pool of natural resources, any slowdown in the advanced economies cannot but be good news for us. The thing thats spooked the market the most in the past few months has been the high rate of inflation and the RBI rate hikes in response to it. Now, RBI has already recently jacked up rates by a more than expected 50 bps which means that any immediate hike rates appear remote; on the contrary, they should be more inclined to rate cuts if inflation eases off. Further, crude, which was hovering at around $100 just around a week back has cooled off to $85. This means that inflationary pressures on India are set to ease off dramatically in the coming few months and with that RBI will also start taking its foot of the interest rate pedal. In the meanwhile, it appears that the markets have factored in the worst of both interest rate (or inflation) and growth, i.e. – that interest rates will remain high and growth will severely decelerate. In the normal course, high interest rates would probably have moderated inflation with an eventual return to acceptable levels of interest rate, inflation and growth. However, with the global turn of events, what we’ll probably see is a dramatic reversal of both challenges – we will probably see a cooling off of commodity prices (resulting in lower interest costs and therefore higher earnings growth) and a reversal of high interest rates as opposed to the adverse scenario that markets are playing on. In other words, 6 months to a year down the line, we’ll probably see the markets getting rerated and the growth premium that India has always commanded coming back into play. Hope I am right in this hypothesis since this time, I am putting my own money where my mouth is.

2 Responses to “The time to enter Indian markets is now”

  1. Krishnan said

    I could buy your point. Whats your take on the current FDI on retail scenario. Is it going to help Indian Businesses?

  2. Good!

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