Monday, June 11, 2012

Yes and Pee

The fundamental reason for investing in any country with a long-term horizon is that one believes in the potential of that particular country to go. Even if it is an exporting unit like a textiles or ITeS player, the development of the host country will allow the company to grow.

India. The brink has been announced with S&P proclaiming that India might be the first BRIC country to be downgraded to 'junk' status, i.e. below BBB-
So, this is how other countries have felt when their sovereign foreign currency 'rating' has been moved downwards. Not pleasant. Luckily, I don't care enough. Sure, costs of borrowing will increase for corporations but this post is about the irrelevance of the S&P or Moody's.
(Yes, Moody's should come out with a similar proclamation soon.)

We know of how stupid they were during the 2008 financial crisis and the current Eurozone crisis.
To put things in perspective, Spain is rated higher at BBB+ even after taking a EUR 100 Bn bailout for its banks and India's rating was last upgraded in 2007 from a BB+ to a BBB-. It took S&P 16 years to bestow an investment grade rating to India.
Rating agencies seem to be a little lazy at changing opinions until it is too late :)
For the last 10 odd years when the Indian economy has grown at one of its best ever runs albeit with a perpetual fiscal deficit, rating agencies did nothing. Now, when what an Indian has already known has come to light - I am referring to graft - rating agencies are panicing. The government's apathy has always been a part of India's development - I am not justifying it, just stating it.

Coming back to my opening statement. I firmly believe that India will continue to remain resilient and after the dust settles on this current crisis, India ought to be the leading emerging economy - because truth be told, despite the structural inefficiencies, Indian entrepreneurship is still strong and so is the will of the authorities at preventing carnage. Keep GDP growth numbers aside because they are ridiculously difficult to forecast; I believe that India will keep growing at a pace which will slowly lift more people out of poverty and into the middle class while making the middle class stronger. I believe that cities such as Pune, Ahmedabad, Jaipur, Chennai will undoubtedly become stronger bastions of commerce in India.
After all, India is still on the ground floor.

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