If all the musicians in Salzburg had become investment managers with investments in India, I don’t see them on the streets of Bombay either!

I visited the musical town of Salzburg, Austria in 1988. That was 20 years ago. The memory I have of Salzburg is one of music. I recall seeing a lot of young people walking around with musical instruments in black cases.

Salzburg is where the famous Wolfgang Amadeus Mozart was born in 1756. This quaint city is also the home of the Universitat Mozarteum Salzburg set up in 1841 which trains musicians, amongst other things.

But, 20 years later, I walked the cobble-stone streets and - there are no musicians. Maybe they are on holiday. Maybe, over the 20 year period, they all became bankers with CFAs and MBAs. Maybe some of them set up hedge funds. Maybe they all started buying Indian stocks and became rich and bought villas on the lakes in Austria.

Investing in India: ending on a bad note

But wait a minute that cannot be possible. If all the musicians in Salzburg had become investment managers with investments in India, I don’t see them on the streets of Bombay either!

And, more importantly, I don’t see their money sloshing around the Indian stock markets anymore. Alas, what is true of the musicians turned investment managers from Salzburg is true of many of the foreign investors.

Since CY 2003 (see Table 1), they have been buying approximately USD 10 billion worth of shares in the Indian stock markets. And their buying drove the markets wild. And more wild.

Then in a mad frenzy between mid-September 2007 and mid-October 2007, the foreign investors pumped in USD 6 billion. Pause and review that number.

From an average of USD 0.8 billion of buying every month (a 5 year average), they bought USD 6 billion in one month. That is 8x the normal monthly inflow.

But the music stopped - it must have been the cold winter and the desire to stay home huddled up in blankets. Heating oil is expensive these days.

In January 2008, the foreigners sold USD 3 billion. They bought small amounts since then.

But now in May they are out of the door again - the foreign investors probably sold USD 800 million worth of stock. And the Indian markets are not in the best of health.

Investing in India: tired of waiting

So I asked a few foreign investors: don’t you like India any more? “How can we like it”, exclaimed one investor, “the Indian market has done nothing.” “It is the worst performing country in my portfolio”, yelled another, “I am tired of waiting.” And we are not even in a bear market.

It seems like it has been many years since foreign investors could not get enough of India. But - as Table 1 indicates - it was only a few months ago when the foreign buying of Indian stocks was 5x the buying by local mutual funds.

For every one rupee the local Indian put in the market via the mutual funds, the foreign investor pumped in five rupees. The poor Indian investor is still putting his money in but the foreign investor is tired of waiting and is heading home with the cash.

The price of a share is determined by many factors, some of which are:

1. The business prospect of the company - how profitable is it likely to be?
2. Does a company borrow from banks or issues more shares to fund its growth?
3. Will the managements of these companies share the wealth they create fairly with the non-family members (what we call “minorities” - the people like you and me who don’t run the companies but are shareholders)?
4. Are there many IPO’s about to hit the market - will the supply of shares increase?
5. Is there anyone willing to buy the shares - is there a demand for shares?

Well, by the sounds of the noises made by some foreign investors I spoke to, the demand for Indian shares seems to have dried up.

That is not to say that India is bad; or that the Indian businesses will do badly; or that Indian managements are not worthy of investing in (some definitely are to be avoided - but that is a global phenomena!).

All that it means is that the foreign investor is not buying because he or she is not buying. Like the spouse who says: “abhi mood nahin hai”. That is also - by the way - a global phenomenon.

Investing in India: keep at it

No one has a clue when the foreign investors will come in. Or what will make them jump back into India.

Just like no one has any idea why they pumped in USD 6 billion into the Indian stock markets in September/October 2007. Or sold USD 3 billion in January 2008.

And no one has any idea when India will no longer be the worst performing market in someone’s global stock portfolio. You should not worry about it. Don’t brood on it.

Keep on buying into shares you like or mutual funds you like (have you made an investment in Quantum Long Term Equity Fund? You should consider it!).

Don’t borrow money to invest. Don’t try to hit “sixers” - or you will be bowled out. Just go for the steady batting. A regular rhythm of strokes, taking every ball as it comes. Seek professional help to confirm what you are investing in matches with what you should be investing in. India is on sale. And it may be for some more time, who knows.

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