Investors should book reservations ahead of President George W. Bush's trip to India next month, since India could very well be the great bull market of the 21st century.
Unlike China, it is a functioning democracy with respect for property rights and the rule of law. Many of its citizens have English as their native language. It also has more advanced financial markets than China, and a stock market established in 1870 that has 6,000 publicly-traded companies.
In 1991, the country had zero foreign exchange reserves. Now it has $150 billion. In 1991, it had one state-owned airline, now it has eight private airlines. And in 1991, India built and sold only 100,000 automobiles. By 2005, automobile production had climbed to one million vehicles.
India is a very youthful nation with 80 per cent of its population under 45 and (this is amazing) 25 per cent of all people 25 and under in the world live in this one country! Its citizens are thrifty with money to spend, with a 28 per cent savings rate to support capital investment.
Consumer finance is rapidly becoming available and fueling a 30 per cent annual increase in spending with retail sales totaling $200 billion last year. India's economy has been chugging along in the 7-8 per cent growth range and it is the only large economy expected to grow faster in the next five years than the last five years.
India's space program has launched 12 consecutive rockets without incident and it put the world's first graphic mapping satellite into orbit earlier this year. It has become a close ally of the United States recently, signing a defense pact and placing a huge order with Boeing while considering purchasing advanced F-16 and F-18 fighters.
And don't forget why President Bush, no big traveler, is headed to India: To cement strong bilateral ties in both the security and commercial arenas.
For sure India has its challenges: big infrastructure needs, frustrating red tape and a tendency for the government to hang on to large state-owned enterprises, to mention a few. Still, compared to China, India does not get much attention except for the outsourcing issue and is, for now, largely under the radar screen of even many sophisticated investors. India's 30 company Bombay Sensitive Index (Sensex) index was one of the strongest markets last year and this year broke the 10,000 barrier.
The challenges with investing in India right now are the valuations of the leading companies and the limited investment options.
The Morgan Stanley India Investment Fund is a closed-end fund that invests in India's blue chips and is up 74% in the last 12 months and 9% so far this year. It is a bit pricey right now and trades at a 13% premium to net asset value, so caution is recommended until this premium comes down to the historical average in the low single digits.
There are only 11 Indian ADRs trading on US exchanges and some of these are pricey. One exception may be the generic drug company called Dr Reddy's Laboratories. Its stock climbed recently after the generic-drug maker bought Germany's Betapharm Arzneimittel GmbH. The purchase, the biggest so far by an Indian drug company overseas, will add $200 million to Dr. Reddy's revenue in the next fiscal year.
An aggressive play would be Rediff.com India Ltd, an Indian communications company. It operates an Internet portal that provides news, weather, sports and entertainment information. It also offers an e-commerce marketplace, e-mail, chat rooms and wireless services. In the last two weeks, it has fallen from $31 to $24 on heavy trading volume. Some refer to it as the Google of India, so watch this one closely for a good entry point.
For many investors, a better alternative is the all-weather Matthews India no-load mutual fund, which is up 8% this year. Matthews, an Asia specialist, launched this fund last October.
Next month, when the media spotlight turns to President Bush's tour of India, smart investors will be back at home enjoying the returns. Hopefully, you'll be one of them.
Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of Chartwell Advisor . He served as a director on the executive board of the Asian Development Bank during the administration of President George H W Bush, and he is the author of The New Global Investor .
