Global investors: The age of the Indo-phile.
Global investors seem to love India currently.For anyone who “knows” anything about Indian markets, there is one thing that they will tell you immediately about 2010. FIIs (or Foreign Institutional Investors – a catch-all term used to refer to those mega investment banks and mysterious hedge funds and all such international moneybags investing into India) poured in USD 30 Billion or so into India. For context, this is by far the largest ever amount of money to flow into India in a single year. As is only to be expected, the market also did well (by common-sensical standards if not by the high Indian standards of good performance) and returned nearly 17.5% or so. The year closed comfortably above 6000 – almost near all-time highs repaying the faith of those who bet on India. The reason also is not difficult to see – with the numerous worries hanging over developed markets and concerns over the stability of world economies, India offers genuine diversification at least in terms of its consumer demand and domestic growth (not to mention stable banking system). This is attractive to a global investor who has even had to worry about his money market funds otherwise.
The only ones not buying the story are the Indians
Yet, for those living in India, there has been none of the enthusiasm or exuberance that one would conventionally expect for a market that has return 50% in 2009 and nearly 20% in 2010 to get to near its all-time highs. Far from irrational exuberance, there has been a sense of nagging pessimism in the air. Data reflects this too -Domestic Mutual Fund investors pulled out a shocking USD 6.3 Billion throughout the course of 2010 – from January to December 2010. For context, the cumulative money put in by investors in the 9 previous years of this decade is around USD 8.5 Bn. Indian investors are clearly not investing (and did not invest last year too with net outflows of nearly 1.2 Bn in 2009)
It is only with the turn of the year that some pundits on the New Year prediction circus have started calling for Sensex of 24,000 and so on while still maintaining a tone of “Cautious optimism (a term I had never heard before coming to financial markets)”. If I were to make a very broad generalisation, I would say that the more cerebral the market analyzed, the more guarded and “cautiously” optimistic the forecast ! There are numerous things to worry about, from inflation worries to scam fallouts and political uncertainty to “valuations” (incidentally, I find it interesting that in Dec 2007 the market at 6000 was not deemed expensive by anyone and three years later, with markets at 6000 again and three years of growth having been baked in – analysts find markets expensive. But more on that some other time). Even Indian promoters seem to have trouble believing in the India story and we have several cases of Indian companies buying international brands – a poultry company buying a football club and a Lucknow based land developer buying a London boutique hotel. So what really is happening here ? Is there a memo that has gone out to all Indians in Hindi ki khareedne do in goron ko aur khud mat khareedo 🙂 What will it take to get Indians to believe in India ?
There’s “something” about India
I believe there is something really mysterious about India that is happening right now. Something that we cannot see today in all our wisdom but that will be obvious by the time this year runs out. A major strengthening of the currency perhaps (USD @ 25 INR anyone ) ? Or maybe a bout of crazy asset and real inflation in store ? Is there just too much black money in the system thats causing a tilt of prices away from reality ? Is the political upheaval for real and will there be a cleaner, less-corrupt system in place as a result of all this ? Is it the hope for greater efficiency that is driving markets to re-rate India. Am personally not a subscriber to the “Markets know everything” theory but there definitely is a case for something being up that Holmes and Watson haven’t figured out yet. I do hope and pray it is a positive surprise. The game is afoot!
Whatever the case, of one thing I am sure – there is a trigger out there that will cause Indian investors to lose their heads and get over-invested. This kind of negativism and worry in the face of rising markets cannot go on for as long as it has (nearly 18 months now). Something has to give. It could be a new high that causes all caution to be thrown to the winds. Or it could be a correction that causes people to feel they have the buying opportunity of a life-time. Market pundits have already reversed their caution. Soon investors will want to jump in on the action. Behold 2011!
Whatever the case, the only way to manage will be to keep your heads about you and avoid any silliness or leverage (the twin dangers all investors face always). I do hope I am able to stay balanced.
Wish all of you a happy and prosperous 2011. May the next decade be as wonderful as the previous one for India.
P.S. Sachin delivered on my wish for a century. Hope the test match ends well too.