India may finally be getting its economic act together. Its Nifty 50 index was up about 35% in 2017. A new book titled “Our Time Has Come” by Alyssa Ayres (Oxford Press) details the economic and political history of India since it became independent in 1947, which is only 70 years ago. Ms. Ayres had studied in India while an undergraduate at Harvard. The book shows how Jawaharlal Nehru, the first prime minister of independent India, and the father of future prime minister Indira Gandhi, instituted socialist principals that almost bankrupted India. India was forced to sell its gold reserves in 1991 to stay solvent. Thereupon it started to reform its socialist ways and now seems to be heading in the right direction for its citizens and all involved.
Despite its recent growth and good news, there is still a lot of potential. India remains an agrarian economy. Think of the USA right after the Civil War, as our Industrial Revolution was commencing. According to Ayres’ book, half of the employment is in agriculture, which contributes 17% of GDP. Only 18% of GDP is in manufacturing, compared with 30% in China. India has a long way to go to catch up with China’s economy, and therefore a lot of potential.
As Ayres’ book notes, there is little downside for the USA regarding India’s emergence. India doesn’t seek to displace the USA as either an economic or political powerhouse, and it doesn’t seek Asian hegemony, as does China. Remember that Tibet’s issue is with China, not neighboring India. True, India and Pakistan still don’t get along, but their dispute has been confined. Ms. Ayres doesn’t mention that one downside is for American manufacturing workers faced with its employers outsourcing to less expensive Indian labor. Nevertheless, the point is we are highly unlikely to go to war with India.
Unless you want to become an India expert, travel and/or live in India for a while, and read the Wall Street Journal India edition, rather than to invest in Indian companies through ADR’s here in the US, the best way to invest in India is through ETF’s. Through ETF’s, you get broad, diversified exposure to India indexes and to the broad India economy without taking individual company risk. I am not suggesting loading up on India but it is a great idea to have some exposure to the broad India markets.
The following are some broadly traded ETF’s sponsored by top managers that invest only in Indian stocks:
- PowerShares India ETF (PIN): This is a broad Index fund that tracks the Indus Advisors, LLC India Index, which has 50 constituents. This fund was up nearly 40% in 2017. https://www.invesco.com/portal/site/us/investors/etfs/product-detail?productId=PIN&ticker=PIN&title=powershares-india-portfolio
- IShares India ETF (INDY): Tracks the Nifty 50 Index. Up 35% in 2017. IShares is a division of BlackRock, the largest funds manager in the world. https://www.ishares.com/us/products/239758/ishares-india-50-etf
- IShares India MSCI Index ETF (INDA): Also run by BlackRock, but tracks a similar but slightly different index called the MSCI India Index. MSCI is derived from Morgan Stanley Capital International. This is the largest of the three index funds listed here. https://www.ishares.com/us/products/239659/ishares-msci-india-etf
- The Emerging Markets ETF (EEM) is not a pure India play but, with over 8% of its allocation, India is the 4th largest country of allocation, behind China, Korea (South, not North, of course), and Taiwan. Also, run by IShares, EEM is much larger than any of these other funds, with over $35 Billion of capitalization. https://www.ishares.com/us/literature/fact-sheet/eem-ishares-msci-emerging-markets-etf-fund-fact-sheet-en-us.pdf
Although I don’t recommend it as an investment manager, if you want to go ahead and buy individual companies, some of the largest in Inda include:
- Reliance Industries
- HDFC Housing Finance
- HDFC Bank
- Tata Motors
- Tata Consulting
- ITC (Cigarettes)
- Axis Bank
- Hindustan Unilever
Allocating some of your portfolio to India, or at least to the EEM, is a good idea. It is likely that India’s economic growth in the next few years will outpace that of the US, and you are well-advised to get in on some of that action. Buy ETF’s instead of individual stocks. I think there is a lot of room for India to grow, although there are still a lot of issues such as its social class system that they need to address. It will take time but the patient will be rewarded.
One final note: India would be well-advised to spend some money to develop decent athletes. Their Olympic and World Cup performance has been terrible. They are good at Cricket but only they and a few other countries care about Cricket. India is also good at motion pictures and that is starting to have an impact outside of India. Having decent athletes would have more impact.