Knowledge@Wharton 2012 Prediction & India’s Victory over Financial Darkness


Remember June 2012? India was gripped by financial crisis. The despair in India was palpable. The Indian growth story was officially over. To use S&P’s metaphor, the angel’s wings were clipped. Read the introduction to our article in Knowledge@Wharton on June 22, 2012:

  • “Standard & Poor’s warns that India could become the first “fallen angel” among the BRICS countries (Brazil, Russia, India, China and South Africa) and Fitch has cut India’s rating outlook to negative. All indicators of business confidence reflect the growing gloom.”

There was reason for gloom. The problems were real and seemed intractable. The financial cognoscenti had given up on India. What they didn’t realize is those are precisely the periods when India is to be bought, to be embraced.

We thought so and argued so in the last section of our article in Knowledge@Wharton titled Leading Question: Can India Be the First ‘Fallen Angel’ to Fly Again? S&P had used the metaphor of an angel with clipped wings to describe India. We used this metaphor in our concluding section Growing New Wings to argue that India could be the first fallen angel among BRICS to fly again. This seemed nuts in June 2012 and a prominent Indian-American media executive publicly scoffed at our prediction.  

What was our case for India’s resurgence in our article?

  • What could go right for India? Could the country, the first emerging market to fall, become the first to rise again?”
  • I believe this could happenfor several reasons. Frankly, the steep fall in the rupee has been a blessing for India. …”
  • A global slowdown might actually make India more attractive than other emerging markets that rely on exports, chiefly commodity exports. In contrast, India benefits from falling commodity prices. A fall in oil and agricultural commodities could cool down Indian inflation and allow the RBI to cut interest rates. These cyclical factors could add to the real structural strength of the Indian economy and boost consumer demand.”
  • Contrast this with China where, according to a Financial Times article, “demand is fading fast.” The article states, “With demand weak… to many parts of the economy…[this] feels like deflation, as corporates appear to be losing pricing power….At this moment… the economy needs a new structural breakthrough.” Other emerging markets, dependent on commodity exports, could suffer from China’s waning demand. This makes India’s real, secular, structural consumer demand story both unique and attractive.”
  • So India, the first BRIC and major emerging market to fall, could end up being the first to recover with a cyclically positive story of low inflation, falling interest rates and the structurally positive story of secular demand. America, the first country to suffer a credit bust in 2008, is widely recognized today as the first economy to emerge from the bust. India could end up being the first economy to come out of a global emerging market bust.”

What do you know? In this joyous week of Diwali, we all get to celebrate India’s victory over the financial darkness of 2012. Today, India is not just flying but soaring in the financial sky like a modern Garud. The performance of India towers over the performance of other BRICS & even above most developed markets.

Look at the numbers. When measured from June 22, 2012, the date of our article, India (measured in EPI, the Wisdom Tree ETF), is up 39% while Brazil down 7%, Russia down 26%, China up 24% and South Africa up 4.1%. The broad emerging market index (EEM) is only up 8.5% since June 22, 2012.  

India stands unique in today’s world. The specter of deflation haunts Europe, China & Japan. Look the chart tweeted this past Monday by Ambrose Evans-Pritchard of the Telegraph:

  • A Evans-Pritchard ‏@AmbroseEP – HSCB’s David Bloom today. “negative inflation surprises intensifying” in G7/Asia. Embedded image permalink

India stands virtually unique in this deflationary world. It is the old story of Ice & Fire. Deflation is like ice that pervades the economy and stifles growth. The global economy runs the risk of entering a Global Cooling period or worse an ice-like age.

India stands virtually unique because it has Fire, the fire of secular demand in today’s low demand world. An economy cannot get growth, cannot generate inflation, unless the economy contains robust consumer demand for goods & services. India is blessed with robust secular demand that will remain strong for the next decade or two. 

In this season of Diwali, it is necessary to remember the importance Indian Dharma places on Agni, the Divine Fire. The sacred fire is at the center of every Indian religious function, a reminder that without fire, the world sinks in the darkness of ice, whether physical, mental or financial. It is Agni that provides the light on earth just as it is the Sun that provides light to our galaxy.



Editor’s PS; Kudos to the 2012 editor & the editorial team of Knowledge@Wharton. It must have been difficult for them to accept our bullish thesis amidst the deep gloom and contempt that had gripped Rating agencies, Wall Street & the Cognoscenti in June 2012. We appreciated their courage in June 2012 and we applaud it today. 


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