The
concept of independent nations as it stands today is a relatively new idea.
Before independent states, countries used to be divided into territories based
on geopolitical, and demographic factors. Today, we may have the concept of
several independent nation states but it would be illogical to say that we have
stopped dividing ourselves based on factors. While today we may divide
ourselves based on geopolitical or demographic factors, the superseding
attribute that differentiates countries in the 21st century is economic
capability. Evidence of this is all around us in the form of economic unions,
treaties or trade rights. One of the most promising economic entity in the last
decade has been the BRIC economy. Consisting of Brazil, Russia, India and China,
BRIC countries possess more than a quarter of the world’s land and more than
40% of the global population. BRIC economies were the poster child of economic
growth as recent as 2010. But 4 years on, the sparkling rainbow over BRIC has
disappeared. China, the strongest of the BRIC economies, is displaying weak
data. Russia is mingled with depleting geopolitical issues with the Ukraine.
And Brazil and India are under high current account deficits. So is that it?
Should investors pack up their bags and disregard investing in BRIC economies?
As the famous saying goes, there is always two sides to every argument. I
believe that India, in particular, from the BRIC economies is a very peculiar
case when it comes to international investing. And one that can bring reward to
those with enough patience.
Patience
is a true virtue when investing in India. If we look at the Indian market from
a political stand point, we will immediately note that India was previously
under a coalition government. It couldn’t implement the same ambitious projects
that are underway now in the last decade. What India is banking on is big
picture reform. And one that can aid in catering its long-term economic growth.
This is where patience becomes key. The longer term infrastructure projects that
India wants to implement will not happen overnight. Everything from better
roads to electric power plants will require time. “One area is infrastructure.
India is fairly behind in this department. The previous government was a
coalition government. It couldn’t approve a lot of projects. Now there is a lot
of enthusiasm to get projects approved. Roads, bridges, ports, or the electric
grid. That whole sector has a lot of interest. Investment is not happening not
because of demand, but because of clearing price of usage and the politics of
setting that. Government agencies not giving confidence that whatever profits
that is made will be harnessed,” said Gravitas Financial’s Vishy Karamadam.
Note that Mr. Karamadam reiterates that demand is not the underlying issue.
This is a sentiment shared by others. The Reserve Bank of India’s governor
Raghuram Rajan said that the government of newly elected Indian Prime Minister,
Narendra Modhi, is doing all that needs to be done to lay the groundwork that
will enable companies to conduct better business in a safer investment climate.
When assessing the Indian market, I believe it is vital to note that India is
not very much like its BRIC neighbors. For instance, if you compare India to
China. You will immediately note an overarching difference. “India is more
domestically focused then China. China’s economy is export orientated. Indian
growth will come from domestic demand. This is the much healthier way to grow
as China is now regrettably finding out,” added Mr. Karamadam.
So
granted you are an investor who is patient enough to invest in India, which
sectors would you look at? I believe that when it comes to an investment
perspective in India, it is best to go with the revolution. And for our
purposes, there are two big revolutions rampantly devouring India. The e-Commerce
revolution and the pharmaceutical boom. The e-Commerce industry in India is
leaping. I wouldn’t be surprised if the next Alibaba is an Indian product. And
what is surprising about e-Commerce in India is its relative growth in the
short run. Let’s compare e-Commerce to the retail market. According to CNBC, e-Commerce
in India accounts for $2 billion, or 0.25%, of India’s retail market. Growth in
e-Commerce in India is tremendous. A really pristine e-Commerce Indian product
is the online restaurant finding service called Zomato. It is perhaps best
suited to compare this app to Yelp. It has an astounding 62.5 million user
count and is available in 5 languages. Mobile banking has also become monumental
in India. Some say that mobile banking will replace credit and debit cards in
India. India is still behind compared to the West in e-Commerce but that is
exactly what gives the country the upper hand. The opportunity to grow. And to
learn from the follies of others. With mobile banking, India will be sure to
implement tighter restrictions and regulations to avoid falling into the same
trattorias pits as Vodafone.
India
has become a key player in the global market of pharmaceutical brands with
companies like Sun Pharma and Cipla. Furthermore, the country is actively
expanding its own resources. For example, Apollo Hospitals is taking the key
initiative to encourage the development of more hospitals. Pathology lab
companies have faced auspicious foreign investment and venture capital
investment. The prime example being Dr Lal Pathlabs which, according to CNBC,
is soon going to be listed at a value near $850 million. India also has the
“cheap factor” at its disposal when foreigners are looking to invest. Multinational
pharmaceutical companies invest in India because they find the country
relatively cheaper to manufacture in as well as to gain huge local growth in.
For the
more traditional investors, worry not. I have a remedy for you as well. Foreign
investors choosing to invest in India have an array of New York traded India
Stocks. There are a number of ETFs and American Depositary Receipts that
foreigners can utilize. Two notable ETFs are iPath MSCI India Index and WisdomTree
India Earnings Fund. Small Cap investors may also chose to look in Market
Vectors India and iShares MSCI India.
Disclaimer: This article was posted
with the permission of a third-party contributor and the opinions
contained therein do not necessarily reflect those of Smallcappower.
Smallcappower does not endorse any investment advice provided by
these third-party contributors.
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