India as the next superpower

This posting is in response to an email I received in response to my first blog posting. I'll post his email first and my response second.

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hi THEByleDuct,
nice thoughts ....
here's a message from one to another ....
tell me what you think ...
regards,
paul
BOMBAY DREAMS
by James Boric

Tomorrow, I will catch a plane to London and then fly
straight on to Bombay.

For nine days, I will be meeting with some of the most
powerful businessmen in all of India. I want to confirm my
suspicion that, over the next 15 years, India will emerge
as the next Asian Superpower.

On paper it seems like a no-brainer.

With a population over 1 billion, a huge growing, well-
educated middle class, a stronger stock market, an
improving education system and a democratic government, the
foundation is set for some serious growth. Now I want to
see it for myself. And I couldn't have planned a better
time to visit this rapidly growing Asian country - from
both a financial and a political perspective.

Let's start with a little politics.

If you have been following the news at all in the past
three weeks, you must have heard something about the recent
Indian elections. What a fiasco.

In a major upset, India's Congress party (led by Italian-
born Sonia Gandhi) defeated the incumbent Bharatiya Janata
Party - which is credited for drastically improving India's
financial and economic situation. This shocked the
financial community.

Foreign money managers immediately pulled millions of
dollars out of the Indian market. They feared the new
government (the Congress Party and its leftist alliances)
would oppose the privatization of major Indian businesses -
- effectively ending much of the economic progress made in
the past and putting a damper on economic growth in the
future. As a result...

The Sensex (the major Indian stock index) fell as much as
17%. Trading had to be stopped several times during the day
on May 17. And when it was all said and done with, the
index ended the day down 11%. It was the single biggest
drop in India's history.

It was all doom and gloom - until a sudden announcement was
made...�

Sonia Ghandi declined the opportunity to serve as India's
prime minister. Instead she (and the Congress party)
appointed Manmohan Singh - India's former finance minister
- to take the helm. He accepted. And the market rebounded.
After all, the financial world in India loves Singh.

Singh was one of the central figures in modernizing the
Indian economy in the last 15 years - lobbying for state-
run businesses to privatize, improving India's central bank
situation, opening the country up for foreign investment
and encouraging free trade with outside countries. And with
him leading the new Indian government, I expect the economy
will continue to grow.

It seems the financial world agrees with me.

Since May 22 (the day Singh was officially appointed
India's new prime minister), the Sensex has recouped almost
all its losses - a good sign for investors. And although
you can count on the market to be bumpy in the short term,
the long-term prospects remain very bullish for India. In
fact, Goldman Sachs is predicting India's economy will
overtake the UK's by 2035, and by 2050 it will be the
third-largest economy in the world - behind only the United
States and China.

We'll see if they are right. But the foundation is laid for
rapid growth in India.

For the first time ever, India is no longer a debtor
country. It has forex reserves in excess of $116 billion.
It expects to double its college graduates in the next six
years. Its currency has been upgraded to "investment grade"
by Moody's, for the first time ever. Major Western
companies like Microsoft, IBM and GE are all opening
offices in India's main cities. And technology (phones,
computers and Internet access) is starting to make its way
into India's towns.

This is an exciting time for India - and for long-term
investors willing to put money in Indian stocks. And when
India does emerge into a legitimate superpower (eventually
growing into the third-largest economy in the world), I
expect a surge in one industry in particular...

When a country emerges from Third World to superpower, one
of the first industries to rise is telecom. And the boom is
already taking place in India...

- The number of cellular subscribers has just about doubled
every year since 1999 - rising from 1.6 million to 10.5
million now.

- The number of phone lines has increased fivefold since
1996.

- Internet connections have skyrocketed from 1.04 million
in 2000 to 4 million in 2003

- 84% of all Indian towns are wired for phones and Internet
access. Yet only five of every 100 people have them. In
other words, the room for growth is enormous.

Couple that with the fact that India has now opened the
telecom industry up to competition, and the stage is set
for explosive growth in the future.

Of course, there are no guarantees you will make money -
especially in the short term. Anytime you own stock in an
emerging country like India, you have to be prepared to
lose. But the rewards if you are right can be huge. In
fact...�

The best-performing foreign markets ALWAYS beat out the
U.S. markets - ALWAYS. For instance...�

In 1987 Japan's market rose 43.2% compared to the United
States' 3.91% rise. In 1989, Austrian investors could have
made 104.8% profits. U.S. investors only made 31%. And in
1998, Finland's market rose 122.6%. Again, the mighty
United States lagged behind - only rising 31.72%.

And if you want a more recent example, look at China. The
USX China Index rose 104% last year. That's impressive. The
Dow Jones only rose 25%. And I believe you will have the
same kind of opportunity with India in the next few years -
that's why I'm headed there now.

I will be staying at the Taj Mahal Hotel in Bombay for nine
days. During my time there I am penciled in to meet with
several of the top executives in the country - including
people from Morgan Stanley, McKinsey, HDFC Bank, ABN AMRO
Bank and ASK Raymond James.

I will also be meeting up with wily traveler Dan Denning -
who has already been in Asia for the last three weeks.
Together, I expect we will cover a lot of ground, meet a
ton of great people and have some fun in the process.

Of course, I will let you know what I discover. I will
write to you from Bombay, and you can expect to read about
my adventures in The Daily Reckoning.


Regards,

James Boric
for The Daily Reckoning

Editor's Note: James Boric is editor of the small cap
advisory letter Penny Stock Fortunes, where he looks for
great companies at penny stock prices. James also writes a
weekly e-mail called the CXS Alert.

James is the most hardworking, knowledgeable Small-cap
analyst in the business... and his track record reflects
this! James has just flown to India to sniff out more great
companies. Be sure to hear what he has to say.


Paul,

I think there is a certain naivety in his assessment and rationale although I do agree with his conclusions. To call the Indian election a fiasco and a shock is in fact ridiculing democracy. The people spoke. He, along with most western commentators, presumed that (as is the case with western democracies) that governments presiding over strong economies do not get voted out. He showed his lack of understanding of the Indian situation by forgetting 4 major issues:

1. The then government was originally elected on a right wing Hindu fundamentalist platform which they then abandoned in the recent election preferring to campaign instead on their economic performance. They subsequently lost their grass roots support.

2. The former government was a coalition (as is the current govt) made up of convenience (ousting the previous govt) rather than of ideological agreement. This led to continuous friction and infighting which the electorate took note of.

3. Indian politics consists primarily of 2 major parties (Congress - secular & BJP - Hindu fundamentalist). The rest who hold the balance of power are regional & caste based. They do not campaign on national issues but on regional interests. Thus coalitions in government are not necessarily reelected on issues that are of national importance but on what is expedient to placate regional tensions.

4. But the biggest misjudgement of this article is the overestimation of the effect of a strong economy on Indian society as a whole. The upswing has certainly improved the lives of many people, but the majority of Indians still are not middle or upper class. They are rural villagers or urban slum dwellers. They can see the impact of the upswing around them (fashion, increase in cars, increase in costs, etc) but they have not experienced it. They are the majority voters.

Two major hindrances exist to India's becoming a superpower - karma (and all the caste rubbish & fatalism that goes with it) and a lack of excellence. What most of the world doesn't realise is that India is already a superpower. Just not in the sense that the west wants to measure it. Look at the reality:

* India is not only the worlds largest democracy but also the worlds largest *successful* democracy. The worlds so called "premiere democracy" - the USA - not only struggled to run a successful election last time around but also can elect the worlds most powerful politician with less than 30% of the total eligible vote in his favour (check Clintons 2nd election figures)

* When India conducted the nuclear tests in 1998, it managed to do it without any country realising what they were doing until after the event. They have kept themselves out of the IAEA and have not signed the non-proliferation treaty.

* The country with the largest English speaking population (English being the recognised global language) is India while the most populous USA state, California, has more Spanish speakers than English. An addition to this is the worlds largest circulated English newspaper is published in India.

* India produces more than 2 1/2 million graduates annually. This does not include those Indians studying overseas.

* Indians are the worlds 2nd largest diaspora after the Chinese (I would argue 3rd with the British 1st)

* Some of the worlds richest men are Indian - Premji Aziz the chairman of Wipro for example

The west equates superpower with strength militarily and economically. I have an article showing that earlier this year the USA held, at the time, secret 'war games' exercises with the Indian airforce. The purpose of this was to test the top USA fighters against the current crop of Russian built fighters. On EVERY OCCASION the Indian pilots out fought, out maneuvered and out classed their USA top gun opponents. As an economy India's strength lies not in it's overall purchasing power but in it's sheer size and ability to be self sufficient if isolated, something most western economies are unable to do (with the exception of Australia.) I have often said that if you could find a single product that every Indian needed at least once a month and you could sell it for only one rupee per piece you would be a very very rich man. One billion rupees every month means even with only 10% profit you would be making close to 1/4 million US$ every month.

Anyhow - yes I agree India will soon become a world superpower even publicly by the means of assessment that is accepted in the West. I also would like to meet these men the other James met.


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