Investing in India: Bombay dreams

James Boric - Sun 11 Jan, 2004

...Investing in Bombay...Tomorrow, I will catch a plane to London and then fly straight on to Bombay. For nine days, I will be meeting with some of the most powerful businessmen in all of India. I want to confirm my suspicion that, over the next 15 years, India will emerge as the next Asian Superpower...

Investing India: Bombay dreams

Tomorrow, I will catch a plane to London and then fly straight on to Bombay.

For nine days, I will be meeting with some of the most powerful businessmen in all of India. I want to confirm my suspicion that, over the next 15 years, India will emerge as the next Asian Superpower.

On paper it seems like a no-brainer.

With a population over 1 billion, a huge growing, well-educated middle class, a stronger stock market, an improving education system and a democratic government, the foundation is set for some serious growth. Now I want to see it for myself. And I couldn't have planned a better time to visit this rapidly growing Asian country - from both a financial and a political perspective.
 
Let's start with a little politics.

Investing in India: The Indian elections

If you have been following the news at all in the past three weeks, you must have heard something about the recent Indian elections. What a fiasco.
In a major upset, India's Congress party (led by Italian- born Sonia Gandhi) defeated the incumbent Bharatiya Janata Party - which is credited for drastically improving India's financial and economic situation. This shocked the financial community.

Foreign money managers immediately pulled millions of dollars out of the Indian market. They feared the new government (the Congress Party and its leftist alliances) would oppose the privatization of major Indian businesses - - effectively ending much of the economic progress made in the past and putting a damper on economic growth in the future. As a result...

The Sensex (the major Indian stock index) fell as much as 17%. Trading had to be stopped several times during the day on May 17. And when it was all said and done with, the index ended the day down 11%. It was the single biggest drop in India's history.

It was all doom and gloom - until a sudden announcement was made...
Sonia Ghandi declined the opportunity to serve as India's prime minister. Instead she (and the Congress party) appointed Manmohan Singh - India's former finance minister - to take the helm. He accepted. And the market rebounded. After all, the financial world in India loves Singh.

Singh was one of the central figures in modernizing the Indian economy in the last 15 years - lobbying for state- run businesses to privatize, improving India's central bank situation, opening the country up for foreign investment and encouraging free trade with outside countries. And with him leading the new Indian government, I expect the economy will continue to grow.

It seems the financial world agrees with me.

Investing in India: The Sensex recouing its losses

Since May 22 (the day Singh was officially appointed India's new prime minister), the Sensex has recouped almost all its losses - a good sign for investors. And although you can count on the market to be bumpy in the short term, the long-term prospects remain very bullish for India. In fact, Goldman Sachs is predicting India's economy will overtake the UK's by 2035, and by 2050 it will be the third-largest economy in the world - behind only the United States and China.

We'll see if they are right. But the foundation is laid for rapid growth in India.
For the first time ever, India is no longer a debtor country. It has forex reserves in excess of $116 billion. It expects to double its college graduates in the next six years. Its currency has been upgraded to "investment grade" by Moody's, for the first time ever. Major Western companies like Microsoft, IBM and GE are all opening offices in India's main cities. And technology (phones, computers and Internet access) is starting to make its way into India's towns.

This is an exciting time for India - and for long-term investors willing to put money in Indian stocks. And when India does emerge into a legitimate superpower (eventually growing into the third-largest economy in the world), I expect a surge in one industry in particular...

When a country emerges from Third World to superpower, one of the first industries to rise is telecom. And the boom is already taking place in India...
- The number of cellular subscribers has just about doubled every year since 1999 - rising from 1.6 million to 10.5 million now.
- The number of phone lines has increased fivefold since 1996.
- Internet connections have skyrocketed from 1.04 million in 2000 to 4 million in 2003
- 84% of all Indian towns are wired for phones and Internet access. Yet only five of every 100 people have them. In other words, the room for growth is enormous.
Couple that with the fact that India has now opened the telecom industry up to competition, and the stage is set for explosive growth in the future.

Investing in India: The rewards can be huge

Of course, there are no guarantees you will make money - especially in the short term. Anytime you own stock in an emerging country like India, you have to be prepared to lose. But the rewards if you are right can be huge. In fact...
The best-performing foreign markets ALWAYS beat out the U.S. markets - ALWAYS. For instance...

In 1987 Japan's market rose 43.2% compared to the United States' 3.91% rise. In 1989, Austrian investors could have made 104.8% profits. U.S. investors only made 31%. And in 1998, Finland's market rose 122.6%. Again, the mighty United States lagged behind - only rising 31.72%.

And if you want a more recent example, look at China. The USX China Index rose 104% last year. That's impressive. The Dow Jones only rose 25%. And I believe you will have the same kind of opportunity with India in the next few years - that's why I'm headed there now.

I will be staying at the Taj Mahal Hotel in Bombay for nine days. During my time there I am penciled in to meet with several of the top executives in the country - including people from Morgan Stanley, McKinsey, HDFC Bank, ABN AMRO Bank and ASK Raymond James.

I will also be meeting up with wily traveler Dan Denning - who has already been in Asia for the last three weeks. Together, I expect we will cover a lot of ground, meet a ton of great people and have some fun in the process.

Of course, I will let you know what I discover. I will write to you from Bombay, and you can expect to read about my adventures in The Daily Reckoning.


Regards,

James Boric
for The Daily Reckoning

   Name

  Email

  Comment

I wish to receive the Fleet Street Daily

Thank you for your comment