Thursday, June 29, 2006

Corporate Governance and Major Trends in India and Indian Stocks

Corporate Governance, or the lack of it, are important factors when evaluating the risk of emerging market investing. Indians historically have had very poor monitoring of the corporations by SEBI, the Securities and Exchange Board of India, the capital markets regulator of India (like the SEC, Securities and Exchange Commission, of the United States). However, things are changing, and they are going in the right direction. See an analysis by the Institute of International Finance here.

Macro trends are extremely important in the investing world. That is essentially the difference between the developed, the developing, and the underdeveloped world-the macro system in place by the Goverments and institutions involved. The United States has a stock market cap of $15 trillion, whereas India is about $500 billion. The world's total stock markets are worth $45 trillion (US is 1/3 the market cap of the world!).

What's an investor to take from these numbers? There is room to grow for India. Indian Markets and the Indian economy is still a very small player on the global scene, and that is going to change in the years to come, provided India executes well and remain free market (and innovation) friendly.

The recent sell-off on the Indian markets is a great buying opportunity for people who believe in the fundamental story of India, Inc.

Sanjay John G.

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