“I told you not to invest in India. Look what’s happening there” said Anvesh, a 35 year old NRI IT professional , to his colleague Niraj. “Rupee has slid so much against the dollar. The markets have fallen so much. The GDP numbers of India are so discouraging.”

“You are right” smiled Niraj. “So where do you think we should invest ?”

“Not too sure. May be in the US.” Anvesh replied in a confused tone.

“Ok. So Indian GDP growth at 5.3% looks unattractive to you and US GDP growth at 2% looks attractive. Why so?” asked Niraj.

“Because the growth rate in India was much higher earlier. In fact, it used to be in the range of 8-9%.” Said Anvesh.

“But it is still way higher than the Growth rate in the US, UK (0%), Germany (1.7%), France(0.33%)* or any other destination you might think of. Don’t you think so?” asked Niraj.

(*source: http://www.tradingeconomics.com/gdp-growth-rates-list-by-country )

“Ok. I will take your point on GDP growth. But what about the market levels? They have fallen so much. I found them really attractive when Sensex was at around 20,000 levels.” Said Anvesh.

“Now that’s a typical herd mentality thought. You want to buy at expensive levels and sell at low. How will you ever make money ? When Sensex was at 20,000 levels, it was at a forward P/E of around 25. Currently it is at a forward P/E of 13-14. Effectively, you can enter the equity markets at a much better valuation now. In other words, you can get the same Sensex at a 44% discount. Now isn’t that a much better deal and a much better valuation?” asked Niraj.

“You seem to make sense. But now my next concern is about the exchange rate. The rupee has fallen so much. Does it make sense to buy rupee for investing in Indian equities ?” asked Anvesh.

“What was the exchange rate when you wanted to invest at 20,000 levels of Sensex?” asked Niraj.

“Well, not too sure. But somewhere around Rs. 44 per dollar.” Said Anvesh.

“Now you compare yourself. Suppose you had 1000 dollars to invest that day, you would have invested Rs. 44,000 in Indian Markets at a P/E of 25-26.

Whereas, today 1000 dollars would fetch you Rs. 55,000 to invest and that too at a P/E of 13-14. This is like getting additional 25% discount to invest in Indian equities. And guess what, this additional discount of 25% is available only to us NRIs as we have our savings in dollars. Indian residents have their savings in rupees. So they will only get the 44% discount as discussed above. So this is a great opportunity for NRIs to invest in India.” Explained Niraj.

“Ok, one last question. Going by GDP growth rate, China is having the highest GDP growth rate in the world, even higher than India. Shouldn’t we invest in China then?” asked Anvesh.

“Well, to be very honest, I don’t have in-depth knowledge about Chinese economy and Chinese Companies. What I broadly know is, they operate more like a closed economy. So I would always prefer to invest where I have higher comfort level and higher access to knowledge.” Said Niraj.

“And so would I. Thanks for opening my eyes, Niraj. Indian economy still has great potential to generate good returns on investments. In fact fallen rupee and fallen markets is a great opportunity to invest. And we all should capitalise on it.” Said Anvesh.

We look forward to your feedback and comments on the above article. Please feel free to contact us on saurabh@nidhiinvestments.com if you have any questions.

(The views mentioned in the article are personal opinion of the author. The characters used in the article are hypothetical).

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6 Comments

  1. uh oh..

    “Whereas, today 1000 dollars would fetch you Rs. 55,000 to invest and that too at a P/E of 13-14. This is like getting additional 25% discount to invest in Indian equities. And guess what, this additional discount of 25% is available only to us NRIs as we have our savings in dollars. Indian residents have their savings in rupees. So they will only get the 44% discount as discussed above. So this is a great opportunity for NRIs to invest in India.” Explained Niraj.

    “But all falling economies start with fall in currency value.. inflation… more inflation and much more inflation. What is the proof that 5 months later, if I convert back to dollars, I will stand to gain?” Anvesh retorted.

    “Well.. didn’t get you.” said Niraj with a blank face.

    “Lets take an example. Today I send 1000 usd to India and get 55000 rupees. Assuming I earn 15% on it; I would still end with about 62000 rupees. How-ever, when a currency starts to fall, it follows an exponential model. German currency in 1930s or Zimb dollars recently fell so sharply that it was cheaper to burn currency for cooking than burn wood. Why would I want to convert my currency from dollars – the most stable currency in the world – to a currency which is showing glimpses of ending up with a run-away inflation” Anvesh Explaned.

    “But how could you be sure of inflation” Niraj became curious.

    “Look at the amount of money printed by RBI every year, fractional banking issues hogging India, short term debt of the nation, spending deficit, fall in growth rate etc” Anvesh continued.

    “Thanks for opening my eyes” Said Niraj.

    1. Good Insights Mr. Shishir.

      Would like to answer them as below:

      1. First let me ask you, if not India, then where ?? US ?? And who can beat US to the extent of printing money to get the economy running ?? They start with QE and now they have sequels running QE2, QE3 ….dont know how many ?

      2. Fall in growth rate ?? Even after fall, India’s growth rate is much higher than US.

      3. Debt on economy ?? Do you know US debt exceeded its ceiling of $16.69 trillion just last week ?? Thus, if the ceiling was not increased (a political move), then US have been in default on its debt.

      4. My article does not aim at creating a “who is great ? India or US?” story. Its more of an informative article on how opportunities can be spotted and capitalised. You dont agree ? Fine. But being an Indian, please think twice before making negative remarks about India, especially in front of an Indian.

      We have issues, agreed. But then as compared to whom ?? US ?? It is sitting on a bomb !! People are borrowing to consume. They have ageing population. If you still think, US is your place to invest, please go ahead and do so.

      Your Mr. Anvesh is looking to invest for 5 months ?? He better not !!

      People coming and investing in Indian markets are not doing a charity to India. They see growth, they see opportunity, thats why they come.

      Yes, its a pity that our own people at times fail to see what people from other countries are able to see.

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