Wednesday, July 8, 2009

The Indian Finance Minister just announced the Union Budget for 2009-1010. According to reports, the Bombay SENSEX crashed by 5.8%, while the Indian Rupee dropped 1.2%.

This begs the question: Is this the end for the rupee? Have the heavens turned their back on the Indian Growth story?

Au Contraire… I believe this is a great bargain time to layer in your Indian investments. Why do I say this? Ah! The devil lies in the details. Let’s take a look at the recent announcement and see if the reaction passes the sniff test!

The Congress Party just re-elected with an almost majority position in Parliament has always had the “common man” (AKA “aam admi” in Hindi) at heart. The budget that allocates the government spending and priorities for next year, is a mass populist budget.

There is not much there for the high rollers as well as for the IT companies. Let’s face it, why try and stimulate the IT sector when no one in the world is buying IT services anyway?

Leave that for later!

The government has decided to spend $8.1 billion to generate work for the common man.

The official growth target for the next year is 9% of GDP. And the government wants this growth to be “inclusive” rather than restricted to specific and limited sectors only.
They want to uplift the common man, not just the IT sector. The government has learnt its lesson from its previous loss when the “India Shining” (The common slogan for the prosperity of India in 2003) booted the government out of power because the growth and success was limited to a handful of sectors only.

Look for Growth Coming for the Next Several Years in India…

While on the surface, this agenda seems rather socialistic, if you look at this budget allocation from India’s perspective and given its history, this makes perfect sense.

The investment in infrastructure and job growth for the masses will ensure the nation’s growth far beyond just the IT sector. And this broad-based growth will bring prosperity to the ‘India Growth’ story at a macro level.

There will be increased government spending. And that will lead to some waste. But this is expected to increase the growth rates from the current 6.7% GDP growth to an expected 9% GDP growth. And to resume the fast growth, the country needs big doses of investments from the government and private sector.

Many analysts suggest that this budget has nothing for foreign firms and their business prospects. But when last checked, the Indian government and its spending priorities were focused on India’s growth first and foreign investors second.

I believe this budget is prudent and timely. It’s laying the foundations of growth in India for years to come. While the foreign investors will fuss for a couple of weeks / months, the business community at large will come back to the table and the rapid progress train will start chugging along again!

So this budget has disappointed the quick fix junkies looking for the next quick shot of economic stimulus. The government instead has decided to go down the path of long haul grunt growth rather than paper profits and artificial growth. And that is why you have seen this sudden but temporary drop in the SENSEX value.

To me this is a perfect entry point into selected stocks in India.

On a technical front, for both for the SENSEX and Indian rupee, the current collapse has been a knee jerk overreaction. This massive move is unsustainable based on the event, and a pull back is going to be equally swift and large.

Stay long India and Indian Rupee!