Saturday, 11 February 2012
Listen to the vegetarians: Indian equities are cheap
Last year you had an explosion of the onion prices in India and that was a real problem for the Indians that are vegetarians and use onions in every dish. This undermined the consumer confidence. For some strange reasons it looks like the price of Indian equities moves around the trend of the onion prices. This equities-to-onions price did signal well the moments when you had to buy and sell Indian equities. At the end of 2011 you got a buy signal. In 2008 equities were a lot more overvalued against onions, so the bear market of 2008 was bigger than the bear market of 2011.
Maybe it is disappointing that Indian equities (even while one of the best markets in the world in the past decade) did not do better than onion prices. Warren Buffett will disagree that it wil be as bad as gold, because you don’t get dividends.
All in all when onions are too cheap to use and people will cry more using onions, you should not be a contrarian investor: be a crier also.
Of course correlation is not causation, the story behind the onions is not very believable for non vegetarians, but still it was quite a nice indicator.