According to the WSJ, India may no longer be the hot place to invest in. Over the past year or so, emerging markets like China and India were growing at a very rapid pace, which helped many Indians to get on the Forbes’s 2007 Billionaire list. Like with all bubbles though, India’s fortune may just be about turning.
The Sensex is already down over 17% year to date. With many companies set to release earnings, reports are leading to even worse than expected numbers:
India’s accounting-standards setter recently indicated that it will tighten rules surrounding the use of foreign-exchange derivatives — financial instruments often used to offset foreign-currency exposure — which many Indian companies use.
Although the full requirements aren’t in place, from now on some Indian companies could indicate the extent of their mark-to-market losses in a note in their accounts. Others could charge them against earnings.
It is hard to forecast the companies that will be affected, which makes things even harder. A tell sign to look for, are companies with excess amount of cash, large foreign operations or foreign-denominated debt for potential hits. On top of all this the Indian currency, rupee, has already led a volatile year.
Just take a look at one of the ETF’s linked to India.
Many believe the negative news is already priced into the stocks; however, Credit Suisse has estimated that the fair value for the Sensex at year end will be around 13000. That would be 7000 down from more than 20000 in early January, and we thought the U.S. markets had problems.