Opportunities in India -- Finally!

Robert Hsu, October 29, 2009

Recent developments in India have led me to reevaluate my opinion of investments in the country -- and I'm excited to finally have this quickly-growing nation as an investable opportunity.

Now, the demographics of India have always been attractive. On paper the numbers look great. From 1997 to 2007, India posted GDP growth of more than 7%. And in the second quarter of 2009, India posted a 6.1% GDP growth -- marking the first increase in growth since 2007, definitely a turnaround story and a respectable number considering the global economic slowdown.

But as I've mentioned to you before, I've not dived in because of several stumbling blocks. If you recall, I visited India last summer and saw first-hand the country's poor infrastructure, widespread poverty and a mostly poorly educated population. And though all these reasons still remain true, there have been several recent developments that have made me rethink opportunities in the country.

Spillover Effect from China: Though India still has a long way to go before reaching the level of economic success that China has achieved in recent years, the overall economic recovery in China is spilling over into the country's Asian neighbors, including India. In fact, growth in China, Hong Kong, Singapore and Taiwan has greatly helped Indian companies who do business with these regions.

Market Recovery: Also, Asia's recovery has helped India come back from the dismal year that the country's markets experienced in 2008 -- losing more than half its total value. But so far this year, India's benchmark stock market has rallied more than 65% due to the country's economic recovery, and GDP growth may be as high as 6.5% for the year. (Realistically, the country's growth may be closer to 6%, but either figure will make it the second-fastest growing major economy in the world -- second only to China.)

Rise of the Middle Class: And much like China, the growth of a new middle-class, domestic consumer has been fundamentally responsible for fueling India's economic boom. Lifestyles in India are changing. Internet use is rising, more people are using mobile phones, eating out and spending on travel and luxuries -- driving domestic demand for goods and services.

Political Drive for Free Markets: Since May, India has been led by Prime Minister Singh, who is an economist by trade and understands the necessity of free markets. And just recently, Singh's party was voted into parliamentary control -- eliminating some political obstacles towards a more capitalistic India. Looking forward, I think we'll see fewer government restrictions on Indian companies and a more capital-friendly environment for investors.

Put all those reasons together, and it's easy to see why I'm starting to dig deeper into India for potential investment ideas today. In fact, I'm already seeing opportunity in an Indian company that is benefiting from the vibrant growth of the Indian economy in general, and particularly the rise of the Indian consumer class.

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