India will show the way as others slip.

Experts are forecasting that Indian stock indices, the Nifty and the Sensex will reach 125,000 and 400,000 respectively by 2030. Currently the Nifty is at 8,538 and the Sensex at 28,458. How can the 2 indices zoom off into outer space leaving the rest of the world behind? The Nifty was at 943 in 2003 and has grown at 20% compounded annually so if it continues to grow at the same rate for the next 15 years then it will go above 100,000. Does that mean that the market capitalisation of Indian companies will be higher than all the companies of the rest of the world put together? What will be the price/earnings ratio of our companies? The P/E ratio of some of our companies are already in fairy tale territory. Shares of Tarang Projects are at Rs 739 while earning per share is just 2 paise, giving it a P/E ration of 36,950. How is this company paying any dividend and why would anyone buy its shares? The Dow Jones index in the US was at 995 in 1966 and last closed at 17,958,  a growth rate of 6.21% compounded annually. The reason why our indices are shooting up is because foreign investors have poured $40 billion into our debt and stocks this year, this despite economic growth slowing to 5.3% in the second quarter to September. It is not just in India. Markets everywhere are rising while growth is slowing. Black Friday sales after Thanksgiving in the US fell by 11%, from $57.4 billion last year to $50.9 billion this year. Stock markets are rising because interest rates are at 0% in the US, Europe and Japan and the Bank of Japan has resorted to bond buying just as the Fed in the US was stopping its own quantitative easing. Fund managers are investing in emerging markets looking for higher returns but at some point all this excessive liquidity will cause inflation and central banks will have to start raising interest rates. But when? Everyone is agreed that the Fed will start tightening from next year but officials are terrified of repeating the mistake of 1937 when a hasty increase in rates, just as the country was recovering from the Great Depression, plunged the economy back into recession. Dealers think that if the Fed raises rates there is a 20% chance that it will go back to 0% within 2 years. Japan has slipped back into recession, prompting Prime Minister Shinzo Abe to call for elections 2 years before schedule. Europe is in danger of falling into deflation as inflation rate hovers at 0.3%. ECB President Marion Draghi wants to start his own quantitative easing but is scared of increasing inequality as easy money allows rich people to buy up assets on dirt cheap loans while savers lose money and pensioners suffer. Perhaps India will save the world and we will all have houses of gold. Only problem is that it might attract marauders from outside.