Abheek Bhattacharya (India) / India Economy: Best of the Broken Brics

Abheek Bhattacharya (India) / India Economy: Best of the Broken Brics

Abheek Bhattacharya

«Among the members of this much-ballyhooed band of emerging economies, Brazil, Russia, China and South Africa are all slowing down», - Abheek Bhattacharya, Indian expert on the Chinese and Indian economies

The Brics have all fallen down, but the slow rebuilding has begun at only one of them—India. Yet for investors, this rejuvenation might not happen as fast as they seem to expect.

Among the members of this much-ballyhooed band of emerging economies, Brazil, Russia, China and South Africa are all slowing down, diseased by relying too much on debt or commodity exports. In contrast, a year after facing crisis, India is starting to revive. Later this week, it should report that broader economic growth ticked up in the June quarter, bottoming out at 4.7% during the fiscal year that ended March.

Other indicators are already pointing in that direction. Exports climbed 9.3% between May and July from the same period the year before, while imports of capital goods expanded in May, June and July after contracting the past two fiscal years, suggesting companies are stepping up activity. Electricity demand soared an average 11% year-over-year in June and July after barely growing the year before. Sales of cars and trucks nudged up, too.

India's informal economy, as large as the formal one though harder to measure, is changing gears as well. The production of cement, used everywhere including the countryside, jumped 9.6% in the June quarter, three times as fast as last fiscal year. More physical currency changed hands the past three months after adjusting for inflation, meaning more transactions are taking place.

These are no doubt promising signs. The problem is that a strong, sustainable rebound in growth will remain elusive. New capital spending announced by companies—a key proxy investors should watch—fell during the June quarter from a year before, according to the Centre for Monitoring Indian Economy.

It could be such investments will take time to arrive. But there are reasons to think they will be slow in coming. The state banks who would fund such expansion remain undercapitalized. New Prime Minister Narendra Modi's broader reform agenda remains modest, suggesting no quick growth catalysts. Consumer inflation is stubbornly high at 8%, hemming in hopes for lower interest rates.

Valuations for the Bombay Stock Exchange 100 stock index remain above their 10-year average, with the index at a record high. India's recovery may outshine its Brics brethren, but it may still not be bright enough for investors.

Оригинал публикации: http://online.wsj.com/articles/india-economy-best-of-the-broken-brics-heard-on-the-street-1409131488