Last BRIC Standing: Why It’s Time to Invest in India
I got the inspiration for today’s newsletter by listening to The Beatles’ White Album.
Last weekend, with Back in the U.S.S.R. wafting through my living room, I was reminded of the Fab Four’s trip in 1968 to the ashram of Maharishi Mahesh Yogi in Rishikesh, India. While there, the band wrote several songs that landed on the double-record masterpiece.
Since that bygone era, Rishikesh has burgeoned from a sleepy backwater into a thriving tourist hub. More than 7 million tourists visit India every year, spending $1.2 trillion. Thousands make the trek to Rishikesh, which has earned the nickname “Yoga Capital of the World.”
India now boasts the globe’s seventh largest nominal gross domestic product (GDP), with a growth rate that the developed world should envy. As investors wring their hands over uncertainty in Brazil, Russia and China, they’re losing sight of the “I” in BRIC, which is India.
For outsized growth amid an overvalued and risky global equities market, India remains the Jewel in the Crown. Below, I pinpoint the best investment play on India.
While my portfolio gently weeps…
Jim Pearce, chief investment strategist of Personal Finance and director of portfolio strategy for Investing Daily, explains why BRIC investing as a whole has become problematic:
“The stock market’s easiest explanations often provide the hardest lessons.
It wasn’t long ago that investors embraced the BRIC countries — Brazil, Russia, India, and China — as the logical winners of the world’s huge appetite for energy and the need to produce more of it. That theory worked well until Saudi Arabia undermined the pricing power of the OPEC cartel. Saudi Arabia’s single-minded determination to drive down oil prices sent energy stocks reeling.”
Today, India’s diversification and emphasis on technology are holding it in good stead. The country’s well-trained and educated workforce has made the country a “go to” destination for global information technology (IT) outsourcing, a multi-year trend that should accelerate in 2017 and beyond. Another unexpected tailwind for India is the election of Donald Trump, who threatens to start a trade war with India’s economic rival China.
Driving India’s tech sector is the growing appetite for e-commerce among the country’s increasingly affluent and tech-savvy middle class, as well as the clamor from businesses for cloud, storage, telecommunications, and data management solutions.
Morgan Stanley estimates that e-commerce sales in India are on track to reach $119 billion by 2020, up from $16 billion in 2015. The investment bank also predicts that India will become a one-billion-person digital market by 2030. Small wonder that e-commerce giant Amazon (NSDQ: AMZN) recently took steps to make India its second-largest market, after America.
India will benefit from the expected increase this year in IT spending, as cash-rich corporations make long deferred upgrades. According to research firm Gartner, worldwide IT spending is projected to total $3.5 trillion in 2017, a year-over-year increase of 2.7% from 2016. Gartner estimates that the biggest gain will occur in the Asia-Pacific region.
Not just another BRIC in the wall…
As India implements economic reforms and rides the tech boom, this vast democracy in the Asian subcontinent is the strongest of the BRICs. Meanwhile, India’s BRIC peers struggle with huge challenges that rightfully spook investors.
India’s GDP posted a year-over-year gain in the most recent quarter of 7%, compared to -2.5% for Brazil, -0.4% for Russia, and +6.8% for China.
For full-year 2017, India’s GDP growth is forecast to reach a robust 7.2%, compared to +0.7% for Brazil, +1.4% for Russia, and +6.5% for China.
Brazil is wracked by corruption scandals and economic mismanagement of staggering proportions; unemployment and poverty are rampant. Russia remains a poorly diversified petro-state that’s run with an iron fist by the kleptocratic regime of President Vladimir Putin.
To be sure, China’s growth remains on track, but consider this: The debt bubble in China is one of the biggest threats facing global stability today. According to some estimates, China’s troubled credit could exceed $5 trillion, a mind-boggling sum that’s roughly 50% of the country’s annual GDP. It puts China’s bank stocks firmly onto a list of the most dangerous equities in the world.
India also is becoming a telecommunications juggernaut. Case in point: British carrier Vodafone (NSDQ: VOD) on Monday announced that it was combining its Indian unit with Idea Cellular, a local Indian operator, in a $23 billion deal that would forge one of the world’s biggest cellphone providers.
A safe, simple and transparent play on India’s relative strength is WisdomTree India Earnings ETF (NYSE: EPI), which is comprised of companies incorporated and traded in India that are profitable and eligible for purchase by foreign investors. The expense ratio is 0.84%, roughly in line with its class.
With net assets of $1.48 billion, EPI holds several bellwethers in the India technology sector, including Infosys (NYSE: INFY), HCL Technologies (OTC: HCTHY), and the tech-heavy conglomerate Reliance Industries (OTC: RLNIY).
Boasting a market cap of $35.1 billion, Infosys is one of the world’s largest IT services company. Founded in 1981 and considered the grandfather of IT outsourcing, the company exemplifies India’s rise as a technology leader.
WisdomTree India Earnings allows you to leverage India’s upside, while limiting the downside. Companies selected for the fund’s portfolio are weighted based on their earnings in the previous fiscal year; those with negative earnings are excluded and those near break-even are given smaller weighting.
EPI gives a larger allocation to small- and mid-cap stocks than comparable India-focused ETFs, which in turn provides greater exposure to up-and-coming tech firms. What’s more, this year is expected to be a good one for smaller companies.
EPI has generated a year-to-date return of more than 12%, as investors have turned away from other struggling emerging markets to pour capital into a comparatively stronger India.
Helping fuel the fund’s upturn has been new reform initiatives from the Indian government to foster high-tech start-ups in the country, in an effort to kick-start growth and break through the bureaucratic red tape for which India is regrettably famous. EPI is an easy way to profit from the multi-year growth of the last BRIC standing.
Got any questions about India or the state of emerging markets today? Drop me a line: firstname.lastname@example.org — John Persinos
Not all that glitters is gold…
India is a bright spot in the world economy, but the woes of other emerging economies are prompting many investors to hedge their portfolios against global shocks.
The obvious choice is gold, but you also should consider a precious metal that often gets short shrift as an investment hedge: silver.
The “white metal” is a smart crash-protection tactic that also offers the potential for huge capital appreciation.
Many analysts are predicting that silver will soar in value this year, as economic growth boosts demand for the metal’s many industrial applications. Rising inflation and stock market volatility also generate tailwinds for silver.
Jim Fink, chief investment strategist of Velocity Trader, has devised a trading system that can turn even tiny stock movements into triple-digit winners.
Jim has put together a $1 trade that will capitalize on the coming silver bonanza. His trade is set to skyrocket 406% within the next 90 days, so you’d better act now.