The Lonely BRIC

I would like to take this opportunity to wish all readers of my blog a very happy and profitable new year. The world is a crazy place and seems to be getting crazier. Stay safe, stay optimistic and in the words of Johnny Walker, "Keep Walking!"

In the words of Yogi Berra, "It is tough to make predictions, especially about the future." But, it is even tougher to write a new year blog post without making predictions. So, continuing with the clichés, here I go putting my foot in my mouth and painting myself into a corner.

Despite my optimistic predisposition towards life in general, some things are clearly visible to the naked eye and refusing to believe them makes one delusional. Therefore, 2016 is going to be a tough year for Brazil, Russia, China, South Africa (the BRICS minus India) and as a result for emerging and frontier markets across the board. They have a lot of structural issues to sort out and these things by their nature take time. India has been sorting out its structural issues for the last few years and the light at the end of the tunnel is now visible. This makes India the lonely BRIC that is likely to have a stable economy in the first half of 2016 and a potentially accelerating economy into the second half of 2016 and well into 2017 and 2018 in a cohort that is in trouble.

The interesting challenge for investors in India will be dealing with the duality of a downward drag from emerging markets and an upward pull from domestic growth. The result, in my opinion, will be a market that is likely to completely divide into two. Any industry/sector that is uncoupled from imports and exports either directly or indirectly (pricing power) is likely to see a wall of money descend on it. And those that are affected by the goings on in other emerging markets are likely to wallow in misery. Given that the supply of domestically driven stocks is limited and their float is even smaller, ridiculous valuations will drive a gigantic revival of the primary markets in the such sectors. To the envy of public markets investors, this will make venture capital investors look like rock-stars. This will likely funnel even more money into early stage investments leading to a frenzied blow-off. The nearest analogue in history to the scenario that is likely to play out is the technology, media and telecom (TMT) boom of the late nineties. Those looking for a repeat of the broad based emerging market (and easy money) driven run of 2004-2007 are likely to be left holding a lot of lemons. India therefore will be an exciting and difficult place for investors in 2016 and it will behave like a lonely survivor in stormy waters. The financial markets as always will give us plenty to do and will keep us busy in 2016.

My concluding cliché then; may your stocks go up in 2016 and if they don't, may you not buy them!

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