The Future of India's Stock Market

What Ever Happened to the “I” in “BRIC?”

What ever happened to the “I” in “BRIC?” We’ve heard plenty from China, Russia and even Brazil…

All this talk about steel and iron ore, the U.S. dollar fears, and the one-year anniversary of the war between Russia and Georgia, we’ve forgotten about India.

Here’s a six-month chart of India’s stock market, the Bombay Stock Exchange 30 Index:

View the Bombay Stock Exchange 30 Index

This shows the massive run-up that India has seen. In comparison to Far East exchanges, though, India has lagged behind Shanghai, and run just about par with the Hang Seng.

We’ve been ignoring India for too long… But the question is, did we miss our chance? Or should we be looking to put the “I” back in the Team?

Asian markets – heck, global markets – are all down, and signaling a top.

According to the chart, India appears to be entering a consolidation period. Between early June and early July, the BSE 30 Index dropped about 2,000 points before rallying through to August.

I think we could see another such pullback in short order, but not a breakdown from there.

India should find support by the end of this quarter, from a technical aspect.

But there are a couple fundamental issues that are working in India’s favor, too.

The BBC reported that India just signed a massive trade agreement with Asean, a group of 10 Southeast Asian countries.

The agreement is six years in the making and discusses a number of commodities and products that will be subject to trade tariffs.

“Tariffs on electronics, chemicals, machinery and textiles will be reduced and eventually eliminated,” said the BBC. “These products make up 80% of goods traded between India and Asean.”

The group is India’s fourth largest trading partner. Last year’s value of trade between the two parties was $47 billion.

This is a big deal for both the Asean and India, but it’s not the only thing India’s got going for it.

The Wall Street Journal reports, “Indian software and outsourcing companies are starting to crack the tough Japanese market in an effort to trim their dependence on ailing U.S. financial clients.”

The WSJ says that India’s Wipro Technologies (WIT:NYSE) just had its best year ever in Japan. Revenue jumped 15% to $115 million for the year ended March 31.

Interestingly, in that Asean trade deal, computer software and information technology are exempt from the deal, which will protect Indian goods from cheaper Asean goods.

Wipro, in comparison to the entire BSE 30 Index, appears to be breaking higher, and resisting the drag on the rest of the Asian indices.

That doesn’t mean that they don’t fall in synch, though. The BSE 30 Index closed 4.07% down. Halfway through the day, Wipro’s ADR was down 4.67%.

The final assessment?

India as the forgotten market hasn’t “bubbled” nearly as much as Shanghai in the past year, but has climbed higher and faster in the past six months.

I think that shows India, like China, could be in for a strong pullback in the near term… perhaps by late September. But on the flip side, at the end of this correction, India could bump higher. Specifically look to technology-based companies for a quick pop.

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