- China, reinforced by its recent mega gas-purchase deals, has been
turning to Russia for some time as an economic partner. Now, it
seems, the only other billion-plus population country may be doing
Rather than looking west, India is looking east, and
contemplating its future as part of a Eurasian union.
From numerous angles India's future is bright. As you'll see,
now's the time to get in on it.
The Focus of International Alliances Is Rapidly Shifting
As we've discussed, Brazil, Russia, India, China, and South
Africa (BRICS) have come together to form their own
BRICS bank rivaling the IMF and World Bank
. I believe this is the beginning of an emerging market
The stated goal of the new megabank is to fund infrastructure
projects in developing economies. With Putin's recent ratification
of the deal, the BRICS New Development Bank is a major step closer
Grouped together, these countries' economies represent a total
population of 3 billion and GDP of $16 trillion. And although
membership is open to other UN member countries, the BRICS' share
is not to dip under 55%, so they effectively retain control. Here's
a quick graphic illustrating the collective size of their combined
countries' size and economic activity:
While the bank's headquarters will be Shanghai and the first
chairman of the board will be Brazilian,
will serve as first five-year rotating president. And there are
further signs that India is angling to link up with even more of
This past January saw another international union come into
effect: the free trade zone known as the Eurasian Economic Union.
EEU members include Russia, Kazakhstan, and Belarus. Even Armenia,
where 27% of total trade is with the EU, and whose in-country
delegation has been trying for years to coax the Asian nation into
joining its union, has chosen its eastern suitor instead.
Let's be clear, these countries aren't economic paradises, but
everything's relative. Given the European Union's own freefalling
currency, mega QE program, record debts, and recurring bailouts and
crises, the EEU could well have a brighter future.
Alexey Pushkov, head of the International Committee of Russian
State Duma, has said that India has proposed joining the EEU.
Russian news agency TASS reported that India will begin negotiating
a free trade agreement with EEU members within six months.
Who's next? According to some Russian sources, now China has
indicated its willingness to join the EEU free trade zone as
A Growing Economy Is Outpacing China
India's economy has been strong, too. The IMF just raised its
forecast for the country's growth from 5.6% to 7.2% for this fiscal
year, and from 6.3% to 7.5% for next year. That's even better than
the IMF's expectations for China at 6.8% and 6.3% for the next two
As we discussed in
, Prime Minister Narendra Modi is likely to cut red tape and take
more steps to boost India's economy even further. If India and
China join the EEU, the total population represented by its members
will reach 2.8 billion, and GDP will top $13 trillion.
So as part of the BRICS and likely the EEU, India is bringing
its own mega market together with even larger ones, from which it's
well-positioned to benefit. India has a huge population that is
young, dynamic, and growing faster than China's, at 1.2% versus
0.5%. And its expertise in a number of areas like engineering and
IT make its outlook particularly attractive.
The Reserve Bank of India surprised markets with its second rate
cut this year. The benchmark repo rate was lowered twice by 25
basis points now to 7.5%, as the central bank looks to boost
inflation. That should help cheapen the rupee, help exporters, and
stimulate investment and consumption.
There appears to be support for rallying Indian equities. The
bottoming out of a recent drop in profit forecasts and Prime
Minister Modi's lift in infrastructure spending bode well for the
This makes two India-centric ETFs particularly attractive.
The Perfect Alignment to Profit Is in Place
iShares MSCI India ETF
(NYSE: INDA) has $3 billion in assets, and tracks 65 large and
mid-cap Indian businesses, representing the top 85% of companies in
the market. It offers broad sector coverage, including consumer
staples, energy, financials, and information technology
INDA is up 11.75% year to date and 23% over the past three years
and yields 0.57%. Its expense ratio is 0.68%.
Market Vectors India Small Cap Index ETF
) tracks as many as 117 small-cap equities and currently has $300
million in assets. Of course its tracking of the more volatile
sector brings more risk, but returns have been outstanding.
For 2014, SCIF was ahead 64% and has gained 11.19% so far in
2015. Its expense ratio is 0.85%. I think there's lots of gas left
in this tank.
India's new leader Modi is taking a fresh approach that's long
overdue. He's cutting corporate taxes from 30% to 25% over four
years. Investors and businesses are gaining confidence as
infrastructure improvements gain steam. And lower
certainly help as this is one of the country's largest imports,
representing savings of around $67 billion annually at current
And India is joining multinational economic fraternities that
will surely expand its markets and boost growth even further.
As I said, India has begun looking east. You may want to begin
looking at India.
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