Very interesting and honest take on the breakdown in India from an honest Indian money manager. He’s clear about how terrible things are in India — but says that India has been cyclical and the underlying reasons for the economy to grow are still there … and the stocks are cheap.

Business confidence at lows, confidence at lows, the country has no effective government, and the infrastructure is crumbling with no sign of improvement. So what’s going on? India is not building capacity, like China has, so inflation and demand are structural in India but their effort to lower demand has actually restrained supply … which has increased demand.

Fiscal austerity and monetary tightening are a disaster for India … because it means no one is spending to increase supply. They can’t constrain demand, people are going to move to the cities. They need to not fear foreign capital, they need to be importers of foreign capital to build infrastructure and earnings power to repay that capital. The problem is that growth and confidence have collapsed.

Retail investors gave up in teh 2008/2009 meltdown. High net worth investors pulled out after the 2010/2011 corruption scandals, those corruption scandals also exercised their version of “capital flight” and pulled their money out of local mutual funds and put it into gold. Then insurance regulators clamped down on insurance-linked equity products and insurance companies started selling … all at the same time.

Indian ownership of equities has dropped to an all-time low thanks to this “perfect storm” … and then the government tightened money and raised rates and the speculators and “stock operators” collapsed too, and foreign investors pretty much gave up in 2013.

So is this the end of the “India story?”

Well, he says they’ve been here before –a similar wave happened with the collapse of capital investment between 1997 and 2002, with the markets down to flat over that time. Then India put together 8% GDP growth for five years. and the markets went up 400% in five years.

India’s modern economy has a history of creating these “coiled spring” markets — it’s a “bottom-up” market and the big booms come from earnings growth combined with multiple expansion. He thinks the currency weakness is an opportunity, companies are trading at ten-year lows (or better).

There has been a great reset, “all the lemmings are dead” ...