The deadly terrorist attacks in Mumbai, India dominated the global headlines last week. What didn’t get a lot of attention, though, was the reason behind the attacks.

The terrorists attacked the commercial heart of India — Mumbai’s financial district. And I believe their purpose was to destabilize India’s democracy and capitalist economy.

Yet …

India’s Economy was Struggling
Before Those Attacks!

The Indian economy expanded by 7.6% in the third quarter. And while that may sound impressive, it’s the slowest pace in four years and well below the 9% growth it had averaged for the last three years.

India’s exports contributed to that decline: down in October for the first time in seven years.

The International Monetary Fund (IMF) expects the Indian economy to continually slow down. And it recently reduced its growth forecast to 8% for 2008 and 6% next year.

In response, the Reserve Bank of India has been aggressively cutting interest rates in hopes of keeping its economy on track. In fact, it has cut interest rates three times since October for a total reduction of one full percentage point.

And much like our politicians, India’s government is embarking on a stimulus-seeking spending spree. The dollar amount — $4 billion — is a far cry from the $7 TRILLION we’re throwing into the U.S. economy. But it nonetheless shows that India shares our same slowdown worries.

Indian IT Companies Are Going
Through a Downturn of Their Own

Mumbai may be India’s financial center, but the lucrative high technology center is in Bangalore.

Bangalore has become the Silicon Valley of India. It is the back office of the world, handling customer service calls, process payments, and writing the code that runs much of corporate America’s software. And its high-technology companies and outsourcing firms are going through a downturn of their own.

The global slowdown is forcing them to reduce hiring, freeze salaries, postpone new investments and lay off thousands of software programmers and call center operators.

Three examples of Indian companies in trouble …

• Infosys: India’s second-largest software services exporter gets two-thirds of its business from the United States. One-half of that is from financial companies, like Citigroup and Bank of America.
• This could explain why Infosys recently scaled back its earnings projections for the year, telling investors that it expects revenue to expand 13% to 15% instead of the 19% to 21% it had previously forecast. That’s way below the 30% growth of recent years.
• Satyam Computer: India’s fourth largest exporter, cut its 2009 recruitment plans from 15,000 to 10,000 and has suspended travel for all but the most critical needs.
• Wipro: Fifty percent of this giant Indian technology outsourcer’s customers are from the U.S. And many are postponing or downsizing contracts. Consequently, Wipro recently laid off 2.5% of its work force.

The Trends for Arranged Marriages
Are Extremely Telling …

You may be surprised that most marriages in India are still arranged by parents. And parents of daughters are very interested in making sure their future son-in-laws have good jobs and can support their families.

So young men working in the technology sector have been among the most desirable marriage partners.

But that is drastically changing …

Jagadeesh Angadi, a matchmaker in Bangalore, said, “‘Because there are no job guarantees for IT people, for the last six months brides’ families have not been accepting grooms from this background.”‘

What Does This Mean For Investors?

First of all, I’d steer very clear of Indian stocks for right now.

I love the Indian people and admire the heck out of their intelligence and work ethic. But the combination of their slowing economy and horribly deficient infrastructure — highways, power plants, airports, water plants, shipping ports — makes it very unlikely that the Indian economy will rebound right away.

Don’t forget, however, that stock markets usually bottom 6-12 months before the underlying economies do. And the bottom of the bear market for Indian stocks may be closer than you think.

Here’s a short list of Indian stocks to watch. They’re all listed on the Nasdaq or New York Stock Exchange so you can buy their shares just as easily as you can Microsoft or Wal-Mart.

Second, make the most of market rallies to raise cash. Put that money into short-term Treasuries or Treasury-only money market funds.

After all, a bargain isn’t a bargain unless you have money to take advantage of it. And when the time is right, you’ll be able to buy India’s best companies for dimes on the dollar.

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