Practical analysis for investment professionals
01 June 2018

Weekend Reads from India: Bull-Bear Bet, Tversky’s Take

Are you bullish or bearish on India? This is a natural question to debate for anyone interested in global markets. And it has no easy answers. Countries as large as India turn bulls into bears and vice versa all the time. Experts say both optimists and pessimists can get India wrong.

Annual Conference Keynote

Haiyan Wang gave an engaging overview of the economic growth trajectories of both China and India, in her address at the 71st CFA Institute Annual Conference. Her preference for India as an investing destination surprised me. It’s not that she missed any of the big challenges India currently faces. It may very well be that China’s long-term goal of becoming “a great modern socialist country that is prosperous, strong, democratic, culturally advanced and harmonious” is more difficult to achieve.

Yet, looking at the rough patches and economic challenges that confront India, optimism isn’t easy.

India Overview

India’s economy has been growing at a rapid clip of over 5% since 1991. In the last 20 years, it roughly quadrupled in size, while China’s economy is now six times larger than it was.

But will India sustain this pace? Weak earnings growth, bad debt, unemployment, infrastructure gaps, corruption, oil prices, geopolitical stress — the country’s list of challenges is long and unattractive. Despite these worrisome burdens, India’s equity markets have performed extraordinarily well. Where is the catch? Is the stock market on an unsustainable runaway spree? We don’t know yet.

But one of India’s sage investor’s has some useful advice: The market represents totality — an average.  Over the last few years, some Indian businesses have lost big, but others have overdelivered.

It is interesting that “high valuations” is the explanation for foreign institutional investor outflows from India. But it is also well known that both macro investing and market timing are difficult to pull off. Instead of timing and placing a macro bet, many successful emerging and frontier market investors have focused on undervalued assets.

Vibrant Democracy

Creating generalized rules for any country, especially India, is always difficult. But for India, one principle appears to have worked over time: democratic government. Democracies allow individuals to reinvent themselves again and again. But unlike in a single-party, top-down system, progress in a democracy like India’s means many things for many people.

For the investment world, it is unpredictable and can be painfully slow.

Before concluding, I have one last point: Bulls, bears, and everyone else should consider Amos Tversky’s logic on optimism: “When you are a pessimist and the bad thing happens, you live it twice . . . Once when you worry about it, and the second time when it happens.”

So, if you have a bearish view on anything at all, or vice versa, be optimistic in your expectations.

Here are a few links you may find interesting. Happy weekend.

Financial Markets

India and Emerging markets

Investing 

Cool Stuff: Decision theory

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©Getty Images/domin_domin

About the Author(s)
Shreenivas Kunte, CFA

Shreenivas Kunte, CFA, is director of content at CFA Institute, where he contributes financial market insights about India and the developed world. Previously, he taught at and managed SP Jain’s Trade and Applied Research lab, which he helped found. Kunte also served as a country trading strategist at Citigroup’s Tokyo office. He actively contributes to the development sector in India and is an external research scholar at the Indian Institute of Technology Bombay.

Ethics Statement

Beyond the easier to understand, important codes of conduct, “Ethics” for me is awareness; an endeavor for right thought and action.

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