Six Reasons to Invest in India
Stock-Markets / India Jun 05, 2008 - 11:01 AM GMT
Larry Edelson writes: India is one of the hottest economies on the planet and holds tremendous profit potential for investors. No doubt in my mind.
Why? India's economy is growing at a 9% rate, TEN times faster than the U.S. and only a couple of percentage points behind China.
And the Indian economy is not merely outgrowing the U.S. by leaps and bounds; it's also at the very epicenter of the booming natural resource markets.
There's too much happening there to cover everything in one column, but today I'll give you my top six reasons why investing in India may well prove to be a highly lucrative proposition.
For starters, consider the following ...
Reason #1: India has the fastest-growing population in the world, expanding at the rate of some 16 million per year. At that rate, India's population will exceed 1.4 billion people and be larger than China's by 2030.
What's more, per-capita income in India has risen steadily over the past five years, from $285 to around $550 today. That's still less than half China's per-capita income of $1,162, but incomes are growing faster in India, at plus 8% year in and year out.
Longer-term, some studies suggest that India's per-capita income can eventually reach six times that of China. Imagine 1.4 billion people in India who on average earn six times more than their industrious neighbors in China!
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| Indian Railway's trains and stations will undergo a major overhaul as part of India's $500 billion infrastructure improvement. |
Reason #2: Government investment in the country's infrastructure is soaring — jumping 9.9% from 2007. And the country needs it. Auto sales are zipping along at a 17% growth rate ... airline passenger traffic is expected to more than triple over the next five years from 14 million per annum to around 50 million.
All told, India's government plans on spending $90 billion on industrial-related projects over the next three years including ...
- High-speed rail freight lines.
- Power plants to supply an additional 4,000 megawatts.
- Three new sea ports.
- Six new airports.
- 12 new industrial clusters, and more.
Over the next four years, by 2012, the government plans on spending a total of $500 billion to build out and improve India's infrastructure!
Reason #3: Manufacturing now accounts for almost 30% of India's economy. When most analysts and investors think of India, they think of agriculture, textiles, and usually its famed information technology service industry, which handles the outsourcing for hundreds of U.S.-based computer hardware and software manufacturers and telecoms.
But in fact, the single largest employer in India is the manufacturing sector, which employs more than 100 million people, more than 25% of the total employed in India, and which is growing at a very healthy 8.8% clip.
Indeed ...
Reason #4: Corporate earnings in India are growing at an astounding 35% annual rate. The 30 largest companies in the Mumbai Sensex index increased their earnings at an incredible 35% in their first quarter of this year, blowing away estimates. Revenues jumped 20%.
Of 800 publicly-traded companies, average earnings growth is a blistering 17%.
At the top, three companies doubled their earnings over the same period last year — Ambuja Cement, and telecom giants Bharti Airtel and Reliance Communications.
Manufacturing biggies such as Tata Steel and pharmaceutical company Ranbaxy Labs are also seeing their earnings explode higher. Tata Steel is expected to report a 12% increase for the quarter when it announces earnings on June 30. And Ranbaxy Labs recently reported a 19% increase.
Reason #5: Private equity investors are now putting more money in India than in China. Nearly $20 billion in private equity poured into India in 2007, a 156% jump versus '06, and 34% more than went into China in '07.
Infrastructure investments account for the lion's shares of the private equity flows into India, followed by the telecom sector, banking and financial services, and real estate.
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| India's Tata Moters recently launched the world's cheapest nano-car. Dubbed the "People's Car," it will sell for approximately $2,500. |
Reason #6: The ballooning Indian middle class — 330 million and growing — is spending their newly-earned money, ramping up retail sales growth that should average 13% or more for the next several years.
Indian demand for telecommunications, autos, housing, financial services, jewelry — you name it, is exploding higher.
And of course, no discussion of Asia would be complete without highlighting the fact that ...
Natural Resources Also Benefit From The Rise of India
India has some essential natural resources, but not enough to keep pace with rapidly escalating demand driven by its vigorous economic growth.
For instance ...
- India's steel industry expects growth of about 8% a year as demand nearly doubles from the current level of 36 million tons of steel per year to 65 million tons by 2012. That means huge consumption of iron ore.
- India's copper consumption stands at about 2.5% of world consumption and even less than China's per capita consumption. But India has already had to rely on copper imports to meet demand.
As India's emerging middle class rises, copper will meet much the same fate as it has in China. Huge demand that can push copper prices to the moon.
- Coal dominates India's energy supply, providing more than half of its power. India's coal consumption is expected to increase 20% in just the next two years.
- India's per-capita consumption of aluminum is less than one kilogram per year. India's aluminum consumption can be expected to climb sharply, perhaps even more than copper.
- And then there's oil demand. Oil provides about 30% of India's total energy consumption, and the country's net oil imports already run at more than 1.4 million barrels a day.
Oil consumption in India is expected to rise sharply, effectively DOUBLING over the next two years to 2.8 million barrels a day.
Everyone talks about the China factor when it comes to oil prices. But once Indian demand starts to really press on oil, watch what happens to the price of black gold. And Indian companies are on the leading edge of providing and distributing oil throughout the country. Ditto for natural gas.
My view: India, like China, is one heck of an economy to bet on going forward. Not only for its growth potential, but also because of its impact on the natural resource markets.
And I believe now is a great time to consider taking a stake in India, or adding to existing positions.
The timing couldn't be better considering that Indian stocks, like Chinese shares, pulled back earlier this year to what I consider bargain basement levels.
The Sensex, which jumped 47% last year to a high of 20,375, is now trading at about the 16,000 level. Take a look at my chart of the index, and the clear support levels and bottoming formation I've highlighted for you.
So here are three ways to capitalize on India's boom:
The Morgan Stanley India Investment Fund (IIF) . A closed-end fund with an objective of long-term capital appreciation, and holdings that run the gamut from energy to agriculture, to mining, pharmaceuticals, telecommunications, building materials and more.
This is a no-load fund, and its overall fees run about 1.4% per annum, less than the sector's 1.9% average.
The India Fund (IFN) , another closed-end fund that is diversified across various industry sectors, and that seeks long-term capital appreciation. Total fees about 1.64%.
The WisdomTree India Earnings Fund (EPI) , a great new Exchange Traded Fund that tracks the performance of 150 of India's top companies.
Best wishes,
Larry
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