[img]522|left|||no_popup[/img] The only thing most Americans know about India is that it is the place where most of world’s call centers have been outsourced.
Until last year’s Cinderella film “Slumdog Millionaire” won the Oscar for Best Picture, most of us could not have found India on a world map, let alone its most dynamic city Mumbai.
If you’re still a little confused, Mumbai is sort of like the artist formerly known as Prince. We used to call it Bombay.
With approximately 14 million inhabitants in the city proper and another 5 million in the suburbs, Mumbai is the second most populated metropolis in the world. It also is the business and financial hub of the world’s largest democracy, India.
Impressively Swift Growth
From the time of its effective independence from the British colonial Raj through 1991 when it abandoned its Soviet-style state planning in favor of free-market reforms, the size of India’s economy has quadrupled. India also has become a world leader in science and technology. Its network of science and technical educational institutions now are considered to be among the finest on the planet.
Today, India’s benchmark stock index known as the Sensex jumped a record 17 percent, bonds rose and the rupee gained the most in two decades. The surge in Indian stocks was so strong that it twice tripped the circuit-breakers, causing trading to be halted each time.
In the midst of a massive global economic recession, the Indian economy is projected to expand by 5.3 percent this year.
With the weight of a bloated economy collapsing around us, it’s tough to imagine why we should care about price of chai (tea) in India. But we should.
India is part of the emerging consortium of economic issues known as BRIC – comprised of Brazil, Russian, India and China. While most Americans have become acutely aware of China’s impact on our economy and its prominence on the world scene, especially since the Beijing Olympics, the other three nations generally are not on the radar of everyday Americans.
[img]523|left|||no_popup[/img] The Sensex extended its year-to-date gain to 48 percent from 26 percent, surging from last to first among the so-called BRIC countries.
Among global benchmarks, only Peru’s stocks have performed better. The Indian measure now trades at 15.6 times earnings, twice the 7.7 multiple of November. That’s still lower than China, at 26.8 times, or Brazil.
By all accounts, this sudden upswing in Indian confidence was due to the overwhelming victory at the polls of the reformed-minded Congress Party. To most observers, its political mandate signals that India may further reduce barriers to foreign investment in insurers and retailers, plans that long have been frustrated by communist lawmakers.
And Now We Are All Allies
Although the impact of the changes afoot in India and other BRIC economies may be difficult for most of us to appreciate, U.S. businesses and investors who have been stymied by our domestic malaise see vast opportunity.
Over the short term, India will benefit from a large influx of foreign capital as a result of the political reaffirmation bestowed on the Ruling Congress Party. The Indian stock market may draw overseas investments worth $10 billion this year as stimulus measures around the world increase trading.
Purchases of Indian equities by overseas investors last month exceeded sales by the most since October 2007. Although this confidence may be a sign of optimism that India’s $85 billion stimulus plan will revive economic growth, it also may be a precursor to waning risk aversion among global investors.
Emerging-market stocks like India and Brazil may gain an average of 20 percent this year as they rebound faster and stronger than their peers in developed countries. Because their recessions were largely the result of inventory build-ups instead of a credit bust, most analysts agree that their recovery will be far faster than their industrial counterparts like the U.S., Britain and Germany.
Whether we like or not, we now are linked at the hip with such economies as those of India and Brazil. Ironically, they may be just the tonic we need to lift ourselves out of the worst economic downturn in a generation.
On the bright side, pretty soon it will be American workers fielding late-night calls from disgruntled Indian customers.
John Cohn is a senior partner in the Globe West Financial Group, based in West Los Angeles. He may be contacted at www.globewestfinancial.com
