This is a piece that appeared in The Rude Awakening, which is part of The Daily Reckoning group. Read on about their bullish views and our analysis of the false hype at the bottom.
Can Indians Spend Like Americans?
By Joel Bowman
"We can usually use the headlines of The Economist and BusinessWeek to predict where you are NOT looking, James. Don't tell us you have flown the contrarian coop?"
"Ha ha...Well, the India I'm looking at is not the same India everyone else is crunching their numbers over," corrects our friend and revered investment analyst, James Boric. "This one is going to be big. I mean billions," he enthuses. "With the correct investment strategy and a few solid stocks Sala Kannan, a renowned Indian analyst, has discovered, I think investors stand to make a considerable amount of money here. This is going to be huge."
We don't doubt James's earnest tone for one moment. After all, we have sat through countless meetings with him over the past few months, listening to him rant and rave about an angle into one of the world's fastest growing economies that nobody knows about. So if it's not the tech stocks, or the pharma plays or even the outsourcing that has got the small-cap guru a flutter, what is it?
"Retail, retail, retail," reveals Boric.
We obviously didn't do a very good job of keeping the perplexed _expression from our face as James quickly explains his reasoning.
"Prime Minister Singh is set to open the floodgates for foreign investment dollars. He is already meeting with the big players like Wallmart, GE, Bill Gates and even President Bush. The major corporations are jostling in line for their chance to pump billions in to the Indian retail sector...they're just awaiting Singh's go-ahead."
"And this is on the cards?" we inquire.
"Singh has about as solid a track record as you will find encouraging foreign investment and competition. He's only been in office since 2004 and already he has increased foreign investment by 23%. He has opened up key Indian sectors that used to be off limits to foreigners. And he has vocally announced that he wants the retail sector to open its doors to foreign investment as well. The only real question is when he will make the announcement – not "if".It could happen within the next few months. It could take a couple of years. We'll just have to wait and see"
"So what happens when people catch on here and realize there is money to be made?" We wonder out loud.
"My guess is that people will be clamoring to get on board. Just look at what happened when China did the same thing back in '92. As soon as the retail sector was open to competition from foreign investors stocks soared to ridiculous highs, wholesale and retail trade went up almost 400% and wise investors that saw it coming made a fortune."
Wow, and we thought only Americans could spend like Americans! So it seems like a no brainer – a huge influx of foreign capital, sharp increase in competition, historical
comparisons – why isn't everyone throwing their money at the McIndia phenomenon?
"Well, I think investors are wary. They are mindful of volatility in the Indian market. If you look at the charts from the past 10 years, there have been huge rallies followed by some massive corrections. People may be worried that it's just too risky, and for the short term I think they are right. I am looking at long term plays, plays that will see large gains out of the gate, but that will continue to climb on the back of a strong economy." James assures us.
"Call us paranoid here, but could some of this volatility be due to corruption and the like?" we press.
"In the past, yes. After a particularly large correction back in '92, one that saw a lot of people cleaned out, India introduced the Securities and exchange Board of India (SEBI) Act. The objectives and functions of the Securities Exchange Board are very similar to the SEC in the U.S. Their accounting laws are also much stricter than the ones we are regulated by here. Obviously you can never rule out the possibility of corruption completely, but I think it is a much safer place to invest now."
Can we expect news of holiday pandemonium at the India Macy's next holiday season?
"Perhaps. There is no doubt what is going to happen in India...It WILL open up its retail sector. Singh has proven he is for a free-market, that he is pro-competition. As the PM of India, I have no doubt what he will do. Keen investors are going to make a tidy sum on this one."
So, can we safely assume that you remain a contrarian to the core still?
"While everyone associates India with technology and IT, I am looking at the real opportunity - which is a $200 billion announcement that isn't on anyone's radar screen.
There isn't a news team in America that is following this event in the making...but it's headline news in India. You show me any other American analyst who is following this story...There isn't one. I think that makes me a contrarian."
P.S. You can grab a copy of the India report, Gateway to India:India's $200 Billion Secret Revealed, by clicking the link below. This is fresh off the print and will likely get snapped pretty quickly, so get in before everyone else snaps it up : India's $200 Billion Secret – Learn More Here
Sucheta Dalal says: Notice all the hyperbole in this seemingly questioning piece? And the flaws?
1. "Prime Minister Singh is set to open the floodgates for foreign investment dollars. He is already meeting with the big players like Wallmart, GE, Bill Gates and even
SD: Sure the Americans are lobbying hard for the opening of the retail sector, but a stream of MNC honchos visiting India is no indicator. That has been going on for a decade now.
2. "Singh has about as solid a track record as you will find encouraging foreign investment and competition. He's only been in office since 2004 and already he has increased foreign investment by 23%.
SD: Notice how there is no cognizance of the fact that Prime Minister Manmohan Singh is not in the same position as the Chinese or Singapore premier. He is not even elected to the post and is hemmed in by the Communist allies of his party and the socialist predilections of his party leader Sonia Gandhi.
3. "Call us paranoid here, but could some of this volatility be due to corruption and the like?" we press. "In the past, yes. After a particularly large correction back in '92, one that saw a lot of people cleaned out, India introduced the Securities and exchange Board of India (SEBI) Act.
SD: Who are they kidding? After the 1992 scam we had the copy-cat Ketan Parekh scam in 2000 and nobody has been punished. Even today there are serious concerns about market manipulation.As for accounting standards, SEBI (unlike the Securities Exchange Commission) can do nothing about it – Chartered Accounts are regulated by the Institute of Chartered Accountants of India (ICAI) which is under the administrative charge of the Ministry of Company Affairs, while SEBI reports to the Finance Ministry.
We in India are looking forward to all the prosperity that promises to be unleashed when retail is opened up to foreign investment. But we are skeptical about the claims, especially when Joel Bowman says that no other analyst is looking at this opportunity!