How to Invest (and Profit) From India

August 22, 2012


How to Invest (and Profit) From India

Do you remember Mukesh Ambani?  I wrote about him a few weeks ago. He’s the fifth richest man in the world and living in India.  He’s the one spending more than $ 1 billion to build a 27 story sky scraper in downtown Mumbai, India.  It’s for his personal residence.  That’s right, a 27 story personal home.

Needless to say, the amount of money he is spending is crazy.

It’s funny how little things get you thinking.  Billionaires aren’t exactly a dime a dozen these days.  I started wondering where he made his billions.  This year there’s two billionaires from India on Forbes’ top 10 list.  I went back to 1990 and India didn’t have a single person on the billionaire list – let alone in the top 10.

India must be booming.

I started looking at India’s markets and their growth.  What I found was amazing.  The iPath MSCI India index ETN is comprised of 62 of the top companies traded on the National Stock Exchange “NSE” of India.  The NSE is the equivalent of our New York Stock Exchange.  The index lost more than 51% of its value in just the last few months alone.

Clearly the hype which began in mid 2007 is out of the market.  Anyone who invested at the New Year is experiencing a lot of pain.  I started thinking again .

. . dangerous I know.  Might this be the time to go bottom fishing in India?

First, a few notes on India.

India is a really attractive market to invest in and I have 5 reasons why. Actually I have more than five but I’m limited by space.

First – India has a huge population.  2008 estimates put India’s population as just over 1.132 billion.  They’re second in the world only to China.  Like China, the Indian population is growing and this presents a huge opportunity.

Did you know India has more teenagers than anywhere in the world? About 115.3 million total.  That’s more than all of the teenagers in the US, Canada, UK, France, Germany, Italy and Japan combined.  Needless to say, this group will become a major influence on the world markets as their purchasing power grows.

Think of them as the Indian equivalent of the baby boomer generation.

Second: Indian GDP growth rates are high.  GDP is the Gross Domestic Product of a country.  It’s basically the value of all the goods and services produced.  India’s GDP has been growing rapidly and from 2007 to 2008 the GDP was a blistering 9%.

Compared to the US GDP growth rate of 3.2%, India’s growing almost 3 times faster.

Third: Low per capita income.  Right now, depending on the data, India is ranked really low on the world’s list of per capita income.  They’re somewhere around 132 or 165 with per capita income of about $ 1,000.

Why is this important?  It means there’s lots of room for growth.  As a comparison, the US ranks somewhere around number 11 globally with per capita income over $ 40,000.

As these metrics grow, it will signal the expansion of the Indian middle-class.  The development of a new generation of consumers with disposable income will have a major impact on global economics.

Fourth: Developing Indian infrastructure.  The Indian government is committed to spending almost $ 100 billion over the next few years to develop needed infrastructure.  Everything stands to benefit including roads, bridges, railroads, seaports, and the energy infrastructure.  This building boom will help not only the country but drive the expansion of new industries.  Think of it like the US economy in the 1950s and 1960s.

Fifth: The sell-off is overdone.  Clearly this market got ahead of itself. Maybe the 50% sell off was needed.  I will admit, the lower price makes these markets much more attractive.  If you have a long term perspective, this might be a perfect time to add to your portfolio.

Now for the million dollar question, how do we invest?

You could buy a mutual fund focused on India or emerging markets.  The problem is you won’t really know what the fund manager is buying.  I prefer buying ETFs where I know what I’m getting.  Looking just at ETFs I see two ways to invest in India.

The iPath MSCI India Index ETN (INP).  This index tracks the returns of 62 companies traded on the National Stock Exchange of India.  This index is market cap weighted, meaning the bigger the company the more the fund owns of it.  You also have a little bit of counterparty risk.  See ETNs are notes that are backed by the issuer.  In this instance Barclays. If they go out of business you might have a problem, it’s a really small chance – but you never know.

I prefer a real ETF.

WisdomTree India Earnings Fund (EPI) is a real ETF.  It holds 123 companies traded on the National Stock Exchange of India.  They’re selected and weighted by profitability and share liquidity.  25% of the EPI index is weighted towards Energy.  Materials and Software & Services make up the next 25%.  This fund is a great way to profit from growth in India, and take advantage of the recent market correction.

Brian Mikes is the editor of the Dynamic Wealth Report, a free investment newsletter that offers investment ideas and news you can’t get from the mainstream investment press. Brian and his team bring decades of Wall Street and Silicon Valley experience to help you discover profitable trading ideas you can use today.

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