As Canadian markets celebrated record oil and gold prices, Indian markets tumbled. For the PDF, click here. From the Ides of March 2009, the Bombay Sensex had made a spectacular recovery and hit an all-time high of 21,000 last November. Since then, it is down 16%. With a weaker Rupee, EPI, the Wisdomtree India ETF is down 23%. To paraphrase Caesar, “Ouch!”
As a net importer, higher oil prices hurt India. Industrial production growth slowed sharply to 2.4% in late 2010 from about 11% mid-year. Food price inflation in the high teens soured moods further. To curb inflation, the central bank doubled the short-term interest rate to about 7% with successive raises. Fearing a broader slowdown, foreign investors sold a net $1 billion worth of stocks in January.
But a 23% correction is a good time to buy what is otherwise a solid economic story. Growth is expected to hold near 8 to 9%. Inflation, including food, is coming down. The 2011 Budget, due 28 Feb, is expected to show improved government finances, partly due to a big sale of wireless telecom rights. Export growth of 36% in 2010 has shrunk the trade deficit to $2.6 billion from nearly $12 billion a year ago.
Confirming the fundamentals, our archerETF Oscillator is signalling a buy (see below), suggesting patience if you already hold EPI and action if you don’t.