In what appears to be a replay of America's own Cold War era competition with the Soviet Union nearly half a century ago, India recently launched its own unmanned space probe to the moon. Rival emerging world power China had grabbed headlines earlier by conducting a space walk in Earth's orbit, and it was time that India stepped up its game.

Meanwhile Back On Earth
But while India's space program is reaching for the stars, the Indian economy and stock market have been on a decidedly different trajectory. After hitting a high of 20,873 last January, India's BSE Sensex stock market index has slumped by about 53%.

The Indian rupee has also depreciated rapidly over the same period. So far, its lost 21% of its value relative to the US dollar hitting a six-year low and negating much of the benefit of the recent fall in crude oil prices and keeping India's oil-import bill high. That's likely to keep India's domestic inflation stubbornly high at around 12%, leaving little room for the Reserve Bank of India (India's Fed) to help stimulate the economy by dropping rates.

And lately the Indian economy has been in need of stimulus. In the most recently reported quarter, the country's GDP growth came in at an annual rate of just 7.9%; the slowest rate of growth in over three years. The Economist Intelligence Unit forecasts even further slowing ahead. It now predicts that the Indian economy will grow at only a 6.5% rate in each of the next two fiscal years; an anemic pace by emerging economy standards. (If you are looking for a good read then check out The Importance Of Inflation And GDP.)

Not All Bad News However
But while its now clear that India won't be able to dodge the overall effects of a global economic slowdown, many of India's fundamentals appear to be resilient enough to help the country weather the storm ahead. During the April-August 2008 quarter, foreign direct investment soared by 114% compared to the same period a year earlier to just under US$15 billion. Over the same period exports in dollar terms rose by 35% and imports were up 37.7%.

New industrial capacity continues to be added to key sectors such as power generation, oil production, steel and auto manufacturing. And, unlike its less regulated developed-world counterparts, India's 49% state-owned banking system remains well capitalized and isn't hobbled by domestic credit problems.

Time To Place An Order For Indian?
So, if there's a decent chance that India won't get too badly pummeled by a global economic slowdown, is it time for investors to start looking for bargains among heavily soldoff Indian shares?

While choices are limited for U.S. investors, there are a couple of options readily available. One obvious choice is The India Fund (NYSE:IFN). This closed-end fund invests in a diversified range of Indian equities and is managed by an affiliate of the Blackstone Group (NYSE:BX). The fund is down sharply from its highs earlier this year. (Be sure to check out Uncovering Closed-End Funds.)

Other options include the NYSE listed ADRs in some of India's flagship IT-services companies like Infosys Technologies (Nasdaq:INFY) and Wipro (NYSE:WIT) whose outsourcing business benefits from a lower rupee. Finally, there's Tata Motors (NYSE:TTM) which recently announced plans to build an electric car in addition to its revolutionary Nano; billed as the world's cheapest car with a price tag around US$2,000.

The Final Word
India's decision to follow a prudent middle path between the two economic extremes of socialist-style state control and completely unregulated free market capitalism will probably help its economy glide into a softer landing than most over the next year. That fact should eventually be recognized by global investors and ultimately reflected in its now seriously oversold share markets.

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