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Given fear of neo-colonialism in India and China, and fears that large western corporations will create entrenched positions that stifle local companies, I can totally understand reasons for both countries to restrict western investment.  But these restrictions will create bifurcation of world trade and less integration.  And it's not exactly in India's interest to have it capital account deficit funded by China is it?  I would think India would much rather have investors from the US/Canada, western Europe, Australia, and Japan.

 

And yes, despite all its problems the Indian stock market will probably do very well for saavy domestic Indian investors, such as some members of this board, but many of us are outside of India.  Open markets are not just something foreign investors should want!

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Given fear of neo-colonialism in India and China, and fears that large western corporations will create entrenched positions that stifle local companies, I can totally understand reasons for both countries to restrict western investment.  But these restrictions will create bifurcation of world trade and less integration.  And it's not exactly in India's interest to have it capital account deficit funded by China is it?  I would think India would much rather have investors from the US/Canada, western Europe, Australia, and Japan.

 

And yes, despite all its problems the Indian stock market will probably do very well for saavy domestic Indian investors, such as some members of this board, but many of us are outside of India.  Open markets are not just something foreign investors should want!

I doubt if a fear of neo-colonialism is driving anything in India; nor does competition.  It is mostly about jobs.

 

Regarding capital account deficit funding - how do you think it has been happening so far?  it is mostly indian diaspora that has been doing it (i don't have numbers to back it up.)  Also, going forward I don't expect a capital starved west to fund anything other than social security and old age pensions.

 

Chinese funding has not been much of an issue around here - despite all you hear in the news, we have good trade with China.  Lot of Indian manufacturing companies are setting base in China - which is a good start.

 

I am with you about open markets (I had od-ed on Ayn Rand.).  What when and where is purely a matter of culture and (our) discretion and judgement.  My vote will not be for government that kow-tows to whatever is in flavor in the international markets.  You don't want another Argentina on your hands, considering the size of the population.

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Open markets are not just something foreign investors should want!

 

Well said Roger. I have a good friend of mine who moved to India for a year and is back - he was saying as a foreign investor, you need to be very careful when investing in India. The business earnings is slowing down in India and if you use the new law to invest in stocks directly, could end up becoming a patsy.

 

I also doubt one can get returns like the past ten years in India where the market went up by 15%/year on the average. Even with 10% inflation and 6% growth - something has to give, either the Indian Rupee depreciates further or the Indian economy becomes noncompetitive as the wages and other costs are going up in double digit rates every year.

 

This is not to say there aren't ways to make money in the Indian market. In a country of 1.2 billion people, there are bound to be some very successful businesses irrespective of the environment. Finding the right ones will and can make one money.

 

Shalab, what is that new law your friend is referring to?

 

I had an Arab client who says that you have to be careful when investing in America (true story!!) - that doesn't make America a bad place to invest.  It is true for all cross-border investments.  You can find crooks every where; you have lot of other ways of losing money everywhere in the world.  You need to hire a real expert; evaluate his call and then decide.  It is true for all "open" economies as well.

 

Rupee depreciation - on average it has lost 3-4% ever since 1991 when the economy opened up.  It has been a reality here.  According to economist though, if I recall right, Rupee is undervalued by something like 50%.

 

I don't get this bit about wage inflation - there are so many people around and everyone is eager to work.  To me, it is like being in the USA in 1970s - everyone was building in wage inflation because they expect inflation to be high next year.  Expectation driven inflation is simple (not necessarily easy) to break as Volcker has shown.

 

Return of 15% and up is still around - not on your terms though - it is for people who are willing to wait and do the hard work of stock picking.  It isn't easy like it was in 2000, 01.  Personally, I don't care whether I get 10% this year or -20%, as long as I make a decent return in the next 10 years.  Isn't that what value investing is all about, as well?

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I am an Indian investor based in New Delhi, India.

 

As usual, the truth is in shades of grey, rather than white or black.

 

India has lots of problems, but lot of these reports are biased/ short sighted/ desk research.

 

Let me talk from other extreme.

 

India is not an open country: Each country has to decide its own pace of openness. US is all for openness for product mobility but has serious problems about services and manpower mobility. Doesn’t US has a president who talks about outsourcing rhetorics to win elections? Why does US keeps increasing Visa fees (http://timesofindia.indiatimes.com/business/india-business/India-proposes-to-take-US-to-WTO-on-visa-fee-hike/articleshow/12497455.cms)? 

 

Corporate Governance is poor: Enron/ Worldcom?!! There are 6000 listed companies, out of which around 1300 are of some size (Mkt Cap > USD 20 m), as on date. With my limited knowledge, I can talk about atleast 150 companies which are decent businesses + run by above average management. This is a sufficient universe for most investors. In this, there are sizable companies which are likely to grow by 20% over next 5-6 years, there are deep value small companies. Growth investors have a play here, deep value investors have a play here. BTW, some of the worst corporate governance practices has been by many MNCs in India. It ranges from capital misallocation, showing poor results just before delisting decisions, poor dividend to lower stock price, shifting product line to unlisted wholly owned subsidiaries, merger with wholly owned subsidiaries at unfair ratios, delisting just before past investments were to bear higher profits etc. I am not talking about Chinese companies. I am talking about P&G ( http://www.capitalideasonline.com/articles/index.php?id=2885), Cadbury’s (now owned by Kraft - http://www.dnaindia.com/money/report_cadbury-dashes-minority-hopes-again_1570878), HP (http://www.equitymaster.com/detail.asp?data-ipsquote-timestamp=03/08/2011&story=4&title=MphasiS--Unfair-deal-to-minority-shareholders), Akzo Nobel (http://www.thehindubusinessline.com/markets/article2872545.ece), OTIS (now owned by United Technologies) etc.

 

Business Ethics: Nobody calls their clients as muppets at Indian banks. Indian banking system is still mostly run on simple banking principles. Yes, there is political interference in public sector banking, but any analyst worth his salt can analyse this in a matter of days. Can’t say the same for toxic derivatives in US financial system.

 

Taxes: I as a resident individual resident pay 15% on short term, and 0% on long term capital gains. I don’t understand why FIIs have a problem in paying taxes? Why do they have to come through tax havens? What is so saintly about stock market investments that it should be tax free? I understand tax regime should be stable and prospective, but why this obsession to evade taxes?

 

I am not saying everything is hunky dory in India and bad in US. But these news reports need to be taken with truck full of salt. There are problems everywhere, difference is in terms of degree depending on population, poverty levels, age since independence, education levels.

 

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  • 2 months later...

Ruppee isnt undervalued... it is overvalued if anything. In india pay commission comes and doubles every govt employees salary for no reason and you expect ruppee not to depreciate with that? India has a lot of problems everyone has problems that doenst mean everyone is same. Everyone else has smart people working on problems in india either smart people leave the country or they are involved in scams to make themselves rich. India cant compete with china forget usa. there are many reasons for it. Many indians are smart however for smart people there is no place in bureaucratic india. I bet if prem watsa stayed in hyderabad this board wont be there. He wont be anybody unless he had connections with chief minister. In short india doesnt value people. it doesnt value innovation this culture

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I was impressed by most recent solar power plant commissioned in western state of Gujarat.

 

In last 3 years they have made strides in solar power. If  half of the India could adopt the rate at which these plants are built, India in next 15 years , will be largest solar power producer.

 

Jump from few mw capacity to few hundred mw capacity is some change.

 

 

http://en.wikipedia.org/wiki/Solar_power_in_India

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