India looks like a buy right now, says Taipan Daily editor Justice Litle.

The recent vote of confidence in the government of Manmohan Singh has not only boosted the rupee but also given the Bombay’s Sensex Index it’s best five-day run since 1992.

According to Reuters, Singh’s ruling party won the vote by a larger majority than expected, despite claims of bribery from opposition parties.

The vote, plus the correction in oil prices, is a strongly bullish sign for future Indian growth. More from Justice…

Some believe India is, in fact, too democratic… to the point of shooting itself in the foot with bribery, bickering and red tape. (Famed investor Jim Rogers has long been bullish on China but not so hot on India, and this has a lot to do with it.)

In China, when Beijing decides to do something, it simply gets done. In India, it sometimes feels impossible to get anything done. When China decides it needs a new airport or power plant or high-speed rail line, the powers that be just make it happen. In India, everyone has a stake and no one has final say. China can approve, plan and finish out a billion-dollar project in the time it takes India to get the first round of paperwork past the “license raj.”

This explains phenomena like the Pudong district in Shanghai — a 21st-century financial center that seems to have sprung up overnight. It also explains why India still has a crumbling network of roads, airports and bridges that feel held together with duct tape.

But not all are convinced that China’s authoritarian overlay is a strength… or that India’s vocal love of democracy is a weakness. In the long run, regimes like the one in Beijing can be brittle – more subject to cracking or breaking under stress. India’s messy system, on the other hand, is far more stable.

In India, leaders may come and go, but there is little threat of an entrenched elite throwing out all the stops to hold on to power in a time of crisis. The elite in Beijing haven’t yet faced a true crisis test.

India’s Big Win

The reason to bring this up now is because India just had a very big win on the political front.

India’s currency, the rupee, racked up its biggest gain in a decade on news that the government survived a confidence vote in parliament. (Indian stocks and bonds also shot up, giving the Bombay Sensex its best five-day run since 1992.)

As you can see from the chart, Indian equities haven’t fared too well for most of 2008.

But that could all be changing now, thanks to an ease in the price of oil and this big development on the political front. The chart shows this, too. Notice that big jump? Something very important just happened.

The bottom line is that Manmohan Singh, the prime minister of India, is a reform-minded guy with a lot of good ideas. He understands free-market economics, he understands globalization, and he knows what to do to get India on track. Under Prime Minister Singh, India has enjoyed record economic growth.

But India’s political system, as loud and messy as it is, has thrown up a lot of obstacles for Singh. Every step forward – towards free markets and open trade and political reform – is threatened to be blocked by India’s communists and anti-trade interests. There is a lot more to do, and many badly needed reforms are still waiting in the wings.

A Crucial Milestone

Before the confidence vote, there was an open question as to whether the reformers would be able to keep up their good work. A loss of confidence in Singh’s government would have meant a new tidal wave of red tape, a rise of protectionist and anti-trade sentiment, and a return to the bad old ways in general. It would have been a huge step backwards for India.

Now that Singh’s government has survived the confidence vote, though, a crucial milestone has been passed. A new wave of capital is set to flood into India – and, in fact, has already started flooding in – on expectation that Singh’s reforms and forward progress will continue.

The treasurer of Axis Bank in Mumbai joyfully told Bloomberg, “[The news] is going to bring a lot of confidence to local as well as overseas investors.”

That’s clearly good news for India’s stock market, which has climbed past the $1 trillion mark under Prime Minister Singh. Now that he has a visible mandate to move forward with his good work – not to mention a trend of relief in oil prices – India looks like a buy.

Source: India’s Big Win