By Courtney Smith
Dateline: New Dehli, India
I’m here in New Dehli and so is President Barack Obama. I’d like to say he invited me but he has no clue who I am.
He is here to blah blah blah. Snooze. Nothing will be accomplished but there will be some spectacular photo ops. I’m told by Indians that Michelle was presented with 400 Indian saris as a gift from the head of India, Modi. And all I got was this t-shirt.
India is starting to boom. There are two main reasons.
First, there is a very stable and sensible monetary policy under central bank chief Raghuram Rajan.
He has not been on the job very long but he has done a good job in lowering inflation and therefore interest rates.
Second, Modi is very business friendly and this is starting to pay dividends and will continue to pay dividends.
The business history of India is actually quite sad. At independence, the economy was dominated by the thoughts of Gandhi and Nehru.
Gandhi believed in extreme self sufficiency. He believed that everybody should spin their own cloth and make their own clothes. One big effect of this is that India threw up huge trade barriers to foreigners coming to do business in India. But this meant that Indians were not subjected to the rigors of a market economy and never had to compete on the world stage. This left them weak. Rich, because they had a huge captive market, but weak. There are few Indian companies that can compete around the world. Quick, name a product you know about made in India.
At the same time, Nehru was an avowed socialist and made the government of India the owner or controller of all the big businesses in India and created the biggest bureaucracy in the world thus stifling small business.
Over the door at the main government building in Banglore is the embedded inscription, “Government work is God’s work.”
I spoke to a hotel owner recently and he told me that he needed to get 80 permits every year to run his business. And they needed to be renewed annually. He had six people doing nothing but getting permits.
Why so many? It’s 80 new opportunities to collect bribes!
But does a country boom under such conditions? Clearly no.
Modi is looking to reduce a lot of this burden. He is looking to reform many parts of the economy such regulatory and labor reform. He wants to lower the trader barriers and lower taxes.
Some of his reforms have taken place and the economy is starting to grow.
This looks like a great opportunity for us to profit. His agenda is ambitious and deep.
His biggest impact will be on small and medium size companies because they are the ones most oppressed by the government.
The main stock index, the Sensex Index, is up 20% since this time last year.
But I prefer an ETF listed in the US that invests in small cap India stocks, SCIF. It’s up 50% in the same time.
The changes that Modi is putting in are powerful but will never be implemented quickly. So this bull market should continue for years.
I think that there will come a time soon where the market gets disappointed at the slow rate of change and the Indian market drops 20-30%. That will be a great to buy for the monster bull market of the next ten.
Still, I think we can money right now, be a little nimble when the disappointment comes in, and then buy again when the long bull wave comes in.