Wednesday, January 24, 2007

Infrastructure Disparity will lead to Market Crash


One of the main leading reasons, IMHO, that will lead to the coming crash in the Indian stock market crash is, what I call – infrastructure disparity.

What do I mean by it?

I’ll give you examples :

India places the greatest value on building up software parks…..
….but it lags way, way, way behind in basic stuff like health services. (& this includes even the best of hospitals).
India is rapidly building up its telecommunications backbones
…..but it has one of the world’s poorest road network.
India’s services sector is growing rapidly…..
……..but red-tape & bureaucracy is a hindrance to the entrepreneur.
I can offer you scores of anomalies. The Indian politicians still do not care a bit to IMPROVE the infrastructure. In some cases, INFRASTRUCTURE HAS TO BE BUILT FROM SCRATCH.

So, what does it translate to?

If the “real infrastructure” is not strong enough, the GDP suffers.

For example, how can you really build up mass-scale retailing if the road infrastructure is weak? How can you effectively buy raw or half-processed materials at cheap price and transport it fast to the place of manufacturing ? So, obviously, the inih-up retail price will be more.

And the Indian GDP is a bit “artificially” inflated due to the services sector growing at a blistering rate. So, the “real GDP” rate is moderate. Which is why, the stock market LACKS CONFIDENCE. Which is why the market is whimsical.

And this is the reason Merill Lynch, S&P, etc. caution lobal investors time & again to exercise caution w.r.t. the Indian market.

BUT THEN, YOU HAVE TO REMEMBER….. A MARKET THAT IS WHIMSICAL OFFERS OPPORTUNITIES TO MAKE MONEY FAST.

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