INDIA BULLS ARE GORING US, FOR NOW

Position: We are short the Indian equity market via IFN

The past weeks have been full of mixed blessing for the Indian economy: Tata’s triumphant launch of the Nano, an emblem of India’s ambitions and potential, was marred somewhat by capacity constraints that will prevent production sufficient to meet anticipated full demand until 2011, a full year later than hoped. After weather worries, the wheat harvest is now projected to be a record haul lifting concerns about consumer price pressure, but with collapsing wholesale prices the prospect of cheaper wheat provided little comfort to the more than 50% of the population that toil as small farm operators.

February export data released by the ministry of commerce today leaves little room for positive interpretation however, as collapsing global demand reverberates through the subcontinent’s manufacturing sector. Exports declined by 22% on a year-over-year basis in February as total exports fell at a greater rate of 23% narrowing the trade deficit to $4.9 billion for the month.  Excluding oil (for which India is import dependant) imports declined by 10% Y/Y.

INDIA BULLS ARE GORING US, FOR NOW - table


Since we launched our macro product early last year we have been consistently bearish on Indian equities. The divergence between our view and the India bulls has largely centered on our more negative bias on the potential for internal demand to sustain at high-single-digit growth levels. The glass half full community sees India as the major Asian economy with the least dependence on external demand while we see a massive mismatch between the vaunted drivers of the “Indian Miracle” –high tech services and intellectual property firms, and the reality of the great majority of India’s population that cannot possibly replace foreign demand for call centers and software.  Meanwhile viable products like the Nano, the model T of India poised to meet massive internal demand, have been hindered by bad governmental policies and a dependence of foreign capital (recall that Tata was forced to walk away from a nearly complete factory to produce the Nano after a regional government failed to satisfy the disgruntled farmers whose land had been appropriated for the site, setting the project back by months at massive expense).

Prime Minister Singh is in London today for the G20, and as both the leader of a rising global economic force and a talented economist his ideas will weigh heavily in the talks. At home however, with election starting before month end, the Prime Minister is scrambling to implement more stimulus measures  -rate cuts, tax cuts and infrastructure programs, which may satisfy voters even if the defense it will provide to economic growth is unclear. In the case of infrastructure projects, it is important to note that the ponderous overlapping bureaucracies of India’s state and federal governments will prevent ground from being broken for months or even years on most projects. Wholesale price levels released later this week may well register negative, but consumer inflation data has still not reflected the decline in commodity prices. In the face of all this, the any optimistic rhetoric by the ruling coalition going into the election needs to be discounted.

We are short the Indian equity market via IFN and continue to have a bearish bias despite the fact that the position has been a drag on our portfolio performance over the past month as the market rallied from January lows; the sting is softened by the long string of double and high single digit returns that we have realized shorting IFN over the past year.

Andrew Barber
Director

INDIA BULLS ARE GORING US, FOR NOW - image001


Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more

Neurofinance: The Psychology Behind When To Sell A Bull Market

"Most momentum investors stay invested too long, under-reacting and holding tight after truly bad news finally arrives to break the trend," writes MarketPsych's Richard Peterson.

read more

Energy Stocks: Time to Buy the Dip? | $XLE

What the heck is happening in the Energy sector (XLE)? Energy stocks have trailed the S&P 500 by a whopping 15% in 2017. Before you buy the dip, here's what you need to know.

read more

Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more