By Mike Caggeso
Of the emerging BRIC (Brazil, Russia, China and India) nations, India's stocks are priced the cheapest as government measures to curb inflation have turned away investors, Bloomberg News reported using its own compiled data.
Making matters worse, India has the fewest natural commodities of the four-nation bloc - meaning it's paying a premium to provide for its soaring population.
Year-to-date, the price-to-earnings ratio for India's market has dropped 33%. And for the first time since 2000, foreign investors turned net sellers, Bloomberg reported.
Last Friday, India's government released data that showed that the country's annual inflation rate rose to a near four-year high at 7.61%, AFP reported.
"I'm just not finding a compelling reason to be in India," said Uri Landesman, who oversees $5.5 billion as head of global growth and international equities at ING Groep NV's (ING) asset management unit in New York, told Bloomberg. "With little natural resources given their population, inflation might be a problem and the government might end up quashing some of the [gross domestic product] growth."
Separate data from the International Monetary Fund showed that among the BRIC nations, India is the only one projected to see slowed economic growth for the second straight year.
But there is still plenty of India to like.
When it comes to inflation, it's not uncommon for the media to report the bad news first. After India's current inflation wave passes, it's expected to significantly drop from 7.6% to 6% in the next three to four months, C. Rangarajan, chairman of Prime Minister Manmohan Singh's Economic Advisory Council, told Reuters.
And let's not forget the obvious: India is the second most populous country in the world and home to one of the fastest rising middle classes in the planet.
Growth may be slowing there, but the fact remains that India is one of the fastest growing economies and one that will continue growing for the next few decades.
There will be plenty of opportunities to profit from the country's growing demand for food, commodities, real estate, transportation, banking, electronics, etc.
One of India's titans on top of the trend is Tata Motors Ltd. (TTM), which recently sealed both ends of the consumer spectrum with its forthcoming $2,500 Nano and its recent $2.3 billion acquisition of the Jaguar and Land Rover brands from Ford Motor Co. (F).
India is also the world's hottest mobile phone market, and Britain's Vodafone Group PLC (VOD) disclosed plans for a $6 billion investment in India's mobile phone market over the next three years. Vodafone currently has 40 million subscribers in India and has set a target of 100 million.
Five Ways to Tap India's Long-Term Growth
There is no doubt about India's long-term growth potential. Investors should position some of their non-U.S. investments in Indian stocks and also "buy on dips" in years when growth slows and the India stock market [The National Stock Exchange of India Ltd.] backtracks - such as now.
For sound exposure to India, the simplest method is via an Exchange Traded Note, or ETN - in this case, the Barclays IPath India Index ETN (INP), whose returns are linked to the Morgan Stanley Capital International India Index (unlike a conventional ETF, an ETN is technically a 30-year note, meaning it distributes assets to holders at the end of 30 years).
Individual shares to look at would include Infosys Technologies Ltd. (INFY), a Bangalore-based software and information technology giant.
Another is the pharmaceutical company Dr. Reddy's Laboratories Ltd. (RDY). As many U.S. pharmaceutical patents expire in the next five years, this major generic-drugs manufacturer can expect to benefit.
News and Related Story Links:
- Bloomberg News:
India Cheapest BRIC Market, May Get Cheaper on Costs
- International Monetary Fund:
IMF Data Mapper
- Money Morning:
Tata's Secret to Success and Three Ways to Profit From it
- Money Morning:
10 Global Trends to Follow for the Next 18 Months