Picture this; 200 coal miners stranded in the mines, overwhelming traffic delays, and a halt in electronic trading. Catastrophic would be an understatement, right? As ugly as it seems, this is just a sneak peek of the situation that hit India at the beginning of the week.
On Monday, around 370 million Indian citizens were left powerless, after massive power failure. Before the dust settled, another more profound outage struck the Asian country on Tuesday, leaving an estimated 620 million people (more than America’s population) in the dark. While reports indicate that the situation has been resolved, it appears as if the outages may have left a scar on India’s growing economy.
Tainted Image
Can you imagine that for the next 8 years or so, The Coca-Cola Company (NYSE:KO) wants to spend most of its overseas investments on India? In fact, Coca-Cola sales in the previous quarter did generate most of the 2Q sales figures. Interestingly, The Coca-Cola Company (NYSE:KO) is not alone. It is just one of the many companies that hold interests in the Indian market.
India’s image so far has been exemplary (Europe could borrow a leaf, at the least). Its market exhibits the ever continuing ability to grow, and constantly avails opportunity after opportunity. All the same, I believe that the outages not only left many cities in dark, but also tainted India’s image.
In a world where commerce undeniably depends on electricity, power outages are the last thing that a country like India wants.
Why is this so?
India is an emerging market. As such, investors are not lured in by visible returns but by the confidence that they hold in the market. Confidence is the main thing. It is the game changer, the all important factor that makes the difference between third rate and first world.
While I cannot extend conclusive judgment, I do believe that confidence levels have dipped. In the current economic environment, investors may not be willing to pump hard earned money into uncertain markets.
In addition to that, the GDP will certainly receive a big blow. India is a go-go economy, where every minute counts. While the loss may be reflected as a small percentage in the total GDP, a loss is still a loss.
On the flip side, there is still a possibility of investors overlooking the situation (though remote). If this happens, what is the one big bottleneck?
The Usual Ruckus
It’s always a hullabaloo after things like this. The worst part of it is that the government gets involved. As is the case here, India’s government has started digging into the matter. While this is the right thing to do, investors don’t usually welcome the idea of government involvement. It invites a lot of prying eyes and doesn’t necessarily give meaning to the whole idea of capitalism.
In as much as the situation has been resolved, I do believe that the power failures will shadow India’s financial markets for a better part of this year.
