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INVESTMENT
India : A
hot destination
By
LARRY EDELSON
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 per cent rate, TEN times faster
than the US and only a couple of percentage points behind China.
And the Indian economy is not merely outgrowing the US by leaps and
bounds; it's also at the very epicentre 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 per cent 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!
Reason 2:
Government investment in the country’s infrastructure is soaring —
jumping 9.9 per cent from 2007. And the country needs it. Auto sales
are zipping along at a 17 per cent 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 per cent 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 the
US-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 per
cent of the total employed in India, and which is growing at a very
healthy 8.8 per cent clip. Indeed ...
Reason 4:
Corporate earnings in India are growing at an astounding 35 per cent
annual rate. The 30 largest companies in the Mumbai Sensex index
increased their earnings at an incredible 35 per cent in their first
quarter of this year, blowing away estimates. Revenues jumped 20 per
cent.
Of 800 publicly-traded companies, average earnings growth is a
blistering 17 per cent. 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 per cent increase for the quarter when it
announces earnings on June 30. And Ranbaxy Labs recently reported a 19
per cent 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 per cent jump versus 2006, and 34 per cent more than went into
China in 2007.
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.
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 per cent 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: 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 per cent 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 per cent 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 per cent 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 per cent 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 per cent 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 cent
per annum, less than the sector's 1.9 per cent 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 per cent. The WisdomTree India
Earnings Fund (EPI), a great new Exchange Traded Fund that tracks the
performance of 150 of India's top companies.
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