The Indian Economy Blog

June 9, 2008

Don’t Write Off India Inc?

Filed under: Business,Capital markets,Growth — Prashant @ 5:56 am

So says Hugh Young in the Financial Times

Indian companies have on the whole risen above the meanderings of government, and in so doing have provided a platform for their shares to do likewise.

Granted, unlike some of its Asian cousins, India will remain a frustrating place for investors, as sensible policies one week are followed by emotional, knee-jerk decisions the next. But India has never really been a top down story, and anyway, the corporate world has learnt to deal with such vacillation.

Investors should focus on areas that are not dependent on reforms to come but those that have benefited from achievements attained. In essence, these are the general embrace of capitalism over the past 15 years and the state’s change of focus, from monopolising wealth creation to a focus on its redistribution.

Do you agree with Young’s optimism?

(A thanks to reader Vijay Dandapani, who forwarded us this article)


  1. If foreign investors can build into expectations a greater degree of populism (with some associated budgetary changes) because of both impending elections and rising inflation, there is no need temper the enthusiasm. The economic and political risk fundamentals remain good.

    Jalal Alamgir

    Comment by Jalal Alamgir — June 9, 2008 @ 7:50 pm

  2. His enthusiasm is not misplaced. But India is intertwined with the Global economy more so than ever now. It will not be immune to the economic collapse of the west. But such an event will truly bring to light resilient sectors of this economy which will get its due credit.

    Comment by goldwinner — June 10, 2008 @ 8:52 pm

  3. Could you please stop using the idiotic term “India Inc”?

    If I’m not mistaken, this term was introduced by a forgettable Time magazine cover story about India in 2006. Nobody outside the Indian media uses or understands this term anymore. It is not clear what it refers to: the overall economy of India? public companies in India? all corporations in India? Indian stock market? Who knows?

    Comment by Matt — June 11, 2008 @ 3:54 am

  4. For a starter, no one can deny the growing buying power of Indian companies these days. Be it Tatas or Vedanta, Infosys or TCS, Indian companies are in a buying spree unseen before. That definitely tells us something about the economic progress in India.

    Redistribution of wealth has always been an enigma in India and the wealth tend to accumulate near the pinnacles of the country aka the conglomerates.

    Nevertheless, the fundamentals of these companies are strong and writing off India from anyone’s balance sheet can be compared with the proven intellect of Simpson’s.

    Comment by Obscurenessmoon — June 12, 2008 @ 4:52 am

  5. If you have the patience of Buffet and iron will to not look at portfolio for another 5-10 years, then go long in sectors that are promising (Media, hospitality, Health etc).
    Simply put, Billion plus people are enough to have an economy running on its own and booming too.

    Comment by sri — June 13, 2008 @ 12:41 am

  6. To Matt:
    I understand your frustration, but you got to live with these idiotic terms, if you want to undrestand Indian media and or Indian market.


    Comment by sri — June 13, 2008 @ 12:44 am

  7. India Inc. has a long way to go. We are still hoping for some reformer like Dr. Manmohan Singh (but not so spineless) to educate indian people about advantages of open economy, so that not every now a then any Prakash Karat oppose the progress of India Inc. I have written a piece about this on my blog (6 reason why India should open its economy completely)

    Comment by chakresh — June 13, 2008 @ 8:23 pm

  8. I have been an incurable optimist for some time now when it comes to India. My optimism is born out the following-

    - We have remained a democracy and I cannot see that changing quickly. However flawed, the twin components of a democracy, competitive electoral politics as a vehicle to acquire power and the institutions that act as checks and balances on the exercise of that power are well in place. No authority, the PM, President, CEC, CJ has absolute powers. Very often we do tend to under-estimate the significance of these in the life of our nation.

    - The economic reform genie has been let out of the bag now and no matter the compulsions of coalition politics, it is impossible to reverse direction.

    - The Central and State Govts. are losing their importance as much of economic activity is private now with very little of our lives dependent on public spending. the role of public services in our lives has declined already to an appreciable extent and will stabilize at the absolute bare minimum if this continues (my opinion).

    - The fragmented nature of our organization as a nation with incredible diversity ensures that there will be multiple customer segments that can sustain efficient, mini and micro businesses that will stimulate entrepreneurship. There will be big business, but so will there be many small businesses.

    Taken together, these mean that private entrepreneurial activity will be sustained; such activity will see solutions to many problems evolving from the energy of millions of businessmen and women. All of this should sustain growth. There was a good editorial in the Business Standard a few days ago drawing on the surprising numbers of self-operated entrepreneurial venutres.

    True, there will be frustrations. If I had a wish it would be for radical reform of education that would multiply the capability of our people manifold. We have too many potential geniuses and creative artists buried under with no outlet for their talent or for them to grow.

    Much of my evidence for this is anecdotal and so will not qualify for serious analysis. Of course I would welcome someone with hard stats and better endowed with powers of analysis to validate/ debunk this line of thought.

    Comment by little Ram — June 16, 2008 @ 10:43 am

  9. Indian entrepreneurship has evolved and grown not because of the government but inspite of it.

    I think it is important to divorce what India Inc is doing vis-a-vis what the Sensex is doing. The fundamental belief that the markets reflect a efficient picture of the corporate sector is a misnomer. Markets extend themselves irrationally both on the way up and way down.

    So let us not equate the extent of correction in the capital markets as the benchmark for businesses. India’s GDP will continue to grow at 8% with the service and manafacturing contributing to a lion’s share of it. Agriculture will grow at around maybe 3%.

    8% GDP growth is not a recession. We will cyclically move maybe between 7 – 9% of GDP growth and I dont see anything in the horizon to break this band either on the upside or the downside.

    Possible joker in the pack would be Oil.

    Comment by Ninad Kunder — June 17, 2008 @ 5:47 pm

  10. Sorry, I came across this post only today. I refrain from commenting on Tata buying Jag (have fun) or the latest mega joke from Reliance with DW (this in a country with 250 mill. people living in poverty). There is rather another industry where India looks very weak: tourism. And there are reasons for that.

    I keep seeing India’s tourism ad on TV. I have no idea, who is responsible for the ad, nor do I know where the hell they got this German (I assume) sixty something couple from. The ad is cheaply made (and this in a country that claims to be big in IT !), it is an embarrassment. Compared to ads about Malaysia, Azerbaijan, Greece etc., India’s ad is a dud. Yes, show me again that wrinkled lady.

    Here comes the kicker: On a per capita basis Nepal has more than double the tourists than India. How is that possible?!

    Comment by Hans — June 20, 2008 @ 3:26 pm

  11. I agree with Sri…if one has patience, then following would be promising sectors with high growth potential -

    - Healthcare – Lifestyle diseases will only get worse as there’s lack of space, fresh air, fresh water, lack of fitness awareness. Big money to be made in fixing diabetes, heart problems, knee replacements, physical injuries, etc. Companies like Fortis, Apollo, and many more to pop up.

    - Entertainment – Majority of population is young and they aren’t hung up on saving every penny. Multiplexes, Bollywood, Cricket, restaurants, bars should do well. I see domestic travel booming as more and more people have cars and train network is decent and discount airlines are booming. However I don’t see Western tourist coming to India for leisure due to our filthy and chaotic cities and there’s not much value for their money.

    - Private education is booming but only if IT can absorb the thousands graduating from the low quality private colleges. Not sure how long will the boom continue. And there’s no incentive for private companies to educate rural poor.

    All madness over real estate should be ending in a year or two and reality should be kickin in (i think!)..and it’ll probably take one or two banks down with it. autos, telecom, fmcg should grow steadily catering to potential billion+ customers.

    Comment by ashutosh — June 21, 2008 @ 12:11 pm

  12. Little Ram, your observations are well thought out. Yes, your forecast about the role of the government will certainly happen. And it has to happen.

    In the early days of independence, a capital starved India had to mobilise money from the public thru taxes and invest on its industries of growth. Now, such a governmental involvement in investment is really not required and they should withdraw from doing biz.

    Step two, the government has and is failing as a ‘governing’ body. till this date, they are not doing what they are supposed to do. Very weak governing activities have really been going on. Governing would mean, providing equal opportunities to every one, protecting the weak and the timid, etc., etc., All these have not been happening.

    The economic change that is setting in now will ensure that the government really mend their affairs. We will see major changes in the next few months, may be, years. Till now, there was really no major economic problem. But what we are going to have in the next two months, will highlight the differences among people grotesquely. The real test of our democracy will happen not from the political side but from the economic side in the days to come.

    Let us hope for the best.

    Comment by Shan Kumar — July 3, 2008 @ 8:34 pm

  13. That India is “not a top down story” is an excellent observation and given the earnings potential which exixts in this massive domestic market, there probably is ample opportunity for corporate India to flourish even without significant modernisation of the legal and regulatory framework, although were progress to be made in this area, something stronger than optimism would probably be called for.

    As to whether his optimism is mislpaced I would say that it depends entirely on your timeframe. Whilst the very short term outlook may be difficult given the structural inflationary problems and the recent dramatic reduction in FDI, the long term picture does indeed offer cause for optimism, particularly if India can exploit the demographic advantage which it has over its economic peers.

    Comment by — August 13, 2008 @ 10:47 pm

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