Bricster's Banter

They come from far and wide—and from Wall Street— to assure us that the Indian economy is doing just fine, thank you very much. John Thain, Chairman & CEO, Merrill Lynch, was in Mumbai recently, where he let on that “there’s a lot of wealth being created in India”, even as he pointed out that Merrill was very much on the mend in the US. Also in India on a similar mission around the same time was Jim O’Neill, Head of Global Economic Research at Goldman Sachs, the man responsible for coining the term BRICs (Brazil, Russia, India and China). O’Neill, of course, stands by the India growth story, and is even generally bullish about the health of the world economy.

According to O’Neill, the global economy is expected to grow at roughly 3.7 per cent in 2008; whilst this is lower than 4.8 per cent and 5 per cent in 2007 and 2006, respectively, it’s still higher than the 3.2 per cent average growth for the last 25 years. The BRIC countries will, of course, have it better—collectively they’re expected to scorch ahead at 9 per cent in the current year, although that’s lower than the 10.2 per cent recorded last year. “India is growing at close to 8 per cent. That was inconceivable a few years ago,” says O’Neill. He also believes that the worst of the US credit crisis is over.

A thumbs up to the Indian economy, however, doesn’t necessarily translate into approval of valuations of domestic equities. “Despite the correction that we have seen (the Sensex has slid from an all-time high in the 21,000 range to 17,000-odd last fortnight), Indian equities seem overpriced.

We are advising clients to invest in western companies that are well exposed to India, rather than invest directly in the local market,” says O’Neill. Now, would that make a Citi more attractive than a State Bank of India?

—T.V. Mahalingam