Is India overheating?

NY Times wrote in Feb 2007

But now, after three years of near double-digit growth, signs of a potentially dangerous inflationary spiral are beginning to emerge. Prime Minister Manmohan Singh and his closest economic advisors gathered just last weekend over fears that India’s extraordinary economic expansion was starting to overheat, an issue they labeled as a “key short-term priority.”

They may have waited too long. Food prices are climbing for everything from lentils to onions, squeezing the poor. Apartment rents and prices are rising steeply, especially in large cities. Factories that make the country’s increasingly ubiquitous motorcycles are running at full tilt and have still fallen weeks behind in meeting orders from dealers.

Economist thought similar. An excerpt which also highlights my dissatisfaction with the Indian media:

A recent study from Goldman Sachs, which forecast that India could sustain 8% growth until 2020, was widely trumpeted in Indian newspapers. However, the bank's report clearly stated that this would require better education, labour market reforms and less red tape. Oddly, most newspapers failed to mention that.

In Feb 2007, the index was hovering around 14-14.25k. Today it is ranging between 18-19k.

At the present, our own Rakesh Jhunjhunwala predicts that markets will reach 50k levels in 6-7 years.

All this lead me to asking, how much water do these observations by journals of such repute hold? For some perspective, lets turn our attention to this nice summary from rediff in Jan 2005 vis-a-vis predictions from top international brokerages on the Indian markets in 2004 and 2005. Notice the cautionary tone exercised by most of these firms. Most of them were predicting the markets to go from 5k to 6-6.5k in Jan 2005. These targets were revised downwards in the middle of the year when markets plunged and confidence evaporated.

The markets closed that year at around 9k levels. Furthermore, notwithstanding the cautionary tales, it hasn't looked back since, ignoring the occasional drop of 10%, and is today at 19k levels! One naturally wonders, did these guys know any better than your grandma or that paan shop owner down the street who constantly issues unsolicited market commentary with equal confidence?

So, who does one rely on to get some advice on investing at the present time in the Indian market, in view of such erratic judgements from leading professionals?

More thoughts on this in the next post.