The end – or a new beginning? Reading the papers these days is depressing. Watching the TV channels is even more depressing. Reading the intelligently-worded reports written by research analysts from global banks is frighteningly depressing.Everywhere there is gloom. The end is here, we are told.

Oil will get to USD 200 per barrel (the price of oil needs to move by 40% for this prediction to come true). The BSE-30 Index will get to 12,000 (only 15% away for this prediction to come true). Inflation will get to 12% (nearly there). India is in bad shape.

The Economic Times has stopped publishing pictures of good looking models on the front pages which are totally irrelevant to their articles. Sadly, they no longer write those humorous articles about how M-Cap has made India such a powerful nation. TV channels no longer have cheerleaders waving each time the Index surges by 1,000 points – there is no surge left in the market. The market is heading the other way – solidly south.

Ladies and gentlemen, I am sorry to announce the death of “India Resurgent”. The one billion people living in this country seemed to have rolled over and died. All of them. No one is buying any more cars, two-wheelers, mobile phones, TVs, homes, clothes, food or medicine. The 1 billion people have frozen.

There is no global warming here – we are in the Ice Age.

Feel the pulse?

Well, that is what the authors of these depressing views would have us believe. Maybe reality is a little different. I look around the shops and still see people. I look around the office and still see my colleagues. I look at the company’s financials and I still see that salaries are being paid. Last time I checked, there still seemed to be people earning money and spending it.

So, maybe we all have not been frozen into Forgotten Land.

One year ago we were told what a great economy India was all set to evolve into. The immense potential of the young population; the brilliance of the captains of Indian industry. India was on a roll. For years into the future. Buy India – was the mantra – buy India forever. One year later – India seems to be the worst place in the world to invest in.

All this because oil has increased from USD 70 to USD 140 per barrel?

All this because we have an election due in the next nine months?

And we have agitations and strikes and bandhs in many states?

Let’s do a reality check here. A few reality checks.

We consume 1 billion barrels of oil every year. A USD 70 increase in the price of oil over the last 12 months has added about USD 70 billion to our “costs of doing business”. Not a small number. It is 7% of GDP.

But it is not crippling. Our estimates show that, as consumers, we have been paying for petroleum products as if oil was priced at USD 100 per barrel. That’s right: USD 100 per barrel of oil.

So the shock to consumers is not as bad as people make it out to be.

India also has over USD 300 billion in foreign exchange reserves. We export products (including petroleum products) and services – so India has the foreign exchange to pay for oil. There is still a pulse, a heartbeat – and it beats pretty regularly.

Yes, say the bears, but not as loud as we had expected it to beat. Aha, we now have to worry about their expectations and the reality of facts. One year ago, these analysts, commentators, and anchors expected India to continue surging at a 9% GDP growth rate forever. We don’t know where they got that number from – it is best to ask them.

Our own analysis had indicated that a 6.5% growth rate in GDP was a more likely, long term number. Not as good as 9% for sure, but nothing to be ashamed of. The 6.5% growth rate in GDP was still over 2x the global average rate of growth in GDP. That has not changed – India will still grow 2x the global rate of growth.

But we recognise that the many stocks were nudging the expensive range at an Index level of 20,500 in January 2008. If the market – and the stocks we owned – had risen by another 15% to 20%, chances are that we would have been sellers. We would have found it better to have sold our shares and waited in higher levels of “cash” for share prices to correct to more reasonable level. We did have some “cash” waiting on the sidelines for an opportunity to buy.

And since February, 2008 we have been buyers – and willing to buy even more at these current levels.

Like I told my hosts on a CNBC show, “We are in a restaurant, and everything in the menu looks good”. And the chef has just announced that he is willing to cut the prices by another 15%. We love it.

Supply and demand.

We have pointed this out before: the price of any product is also a function of demand and supply for that product. Demand for Indian shares was really high in the years 2004, 2005, 2006, and 2007 – so the share prices move upwards rapidly. As long as there was an underlying “business value” which made sense for us to own the shares of companies in this rising tide, we owned them. When we did not like the valuations, we sold the shares that were no longer “value” and stayed in “cash”.

But now, the supply of shares is far exceeding demand.

The foreign investors are selling out of India. They have sold USD 6 billion in 6 months so far. Since 2003, they have been buyers of USD 0.8 billion every month. In the year 2007, the foreign investors bought USD 17 billion worth of shares in 12 months – that is nearly USD 1.5 billion every month. This year they have sold USD 1 billion every month. And the local Indian money has been coming into the stock markets via the mutual funds but, it is not enough.

If the pension money flows in – maybe about Rs 30,000 crores or so could find its way into the stock markets, but the Left parties don’t feel like supporting that move.

So there is only one way to create demand pretty quickly – give incentives to individual Indians to buy into mutual funds. If any individual buys into a mutual fund and hangs in there for 5 years, make his initial contribution free of tax – an idea we mooted a few weeks ago.

Since then the market had declined another 15%. The market cap of the companies controlled and owned by the government probably declined by another USD 100 billion. We really don’t know if anyone from the government reads these articles or takes our advice seriously. But that does not affect our actions.

Maybe we are stupid. Maybe we are optimists (though CNBC keeps calling me a “bear”).

When someone is willing to give us what we think represents an opportunity to own a piece of some pretty good businesses and attractive prices, we are willing to buy them. And hold onto those shares for years, if need be. Till the demand for shares increases again – and India Climbing becomes the next theme. And the Economic Times puts those models back on their pink pages again.

We have no clue whether the analysts, the press, the TV anchors, and all these experts are right on their “sell India” call.

We recognise “value” and we are buying.

Source: The end – or a new beginning?