Savvy investors search for themes that can lead to strong, long-term profits. Will India be one for years to come?
[ibd-display-video id=532706 width=50 float=left autostart=true]It sure seems so. The large democracy hosts a young population. Entrepreneurship is rising. Prime Minister Narendra Modi has driven meaningful tax and currency reforms to encourage competition, boost inter-regional commerce, and encourage direct investment.
One key reform: the GST (Goods and Services Tax), meant to replace the dizzying array of local taxes that vary from region to region.
"It is something that will really change the history of India," Paul P. John, president of the eponymous high-quality single malt whisky distiller based in Goa, told IBD. Paul John, started in 1992, produces 10 million cases of whisky each year as well as brandy and wine.
Ask investing veterans and you'll find plenty of optimism.
Mohnish Pabrai, managing partner of Irvine, Calif.-based $705 million Pabrai Investment Funds, notes that 55% of the country's people are under the age of 30. Hundreds of millionaires are under 40.
"What really surprised me is the number of good entrepreneurs and CEOs that I have met there," said Pabrai, author of "The Dhando Investor." His flagship fund PIF 2 is up 56.8% year to date through Sept. 30. "Of the 5,000 publicly traded companies in India, around 1,000 are really good. It's a very big base. These guys are not only going for it, but they underestimate the tailwind that's going for them."
Pabrai, who visits his native homeland often to study investing opportunities, notes only 3% of the citizens participate directly in the stock market. "Even though the Indian equity markets are at record highs, I am still finding the occasional deeply undervalued security in India. I love what we own in India," Pabrai wrote in a recent note to clients.
The Bombay Stock Exchange's S&P BSE Sensex benchmark trades near 33,053, up 24% since Jan. 1.
Finding top Indian firms may be tough if you do not have direct access to the Bombay Stock Exchange. Today, few Indian ADRs trade on Wall Street. This year, business process outsourcing play WNS Holdings ( WNS ) (98 Composite Rating on IBD Stock Checkup ) and HDFC Bank ( HDB ) (91 Composite) are the only Indian ADRs that get a Composite of 90 or higher. Tata Motors ( TTM ), which owns the Jaguar and Land Rover brands, holds a lousy 28 Composite.
High net worth investors can participate in the Pabrai and similar hedge funds. Others can buy a top mutual fund that specializes in India. Check out the $231 million Wasatch Emerging India fund ( WAINX ) and $2.3 billion Matthews India Fund ( MINDX ). The former shows an average annual total return of 15.68% over five years through Sept. 30; the latter is up 14.96%.
"The new tax regime is already speeding up the flow of goods throughout India by eliminating time-consuming stops at various checkpoints," co-managers Ajay Krishnan and Matthew Dreith wrote in a recent report. "However, initial confusion over compliance details has offset some of GST's benefits in the short term, especially for small businesses."
WisdomTree India Earnings (EPI), showcased in IBD's weekly ETF Leaders column on June 5, selects stocks that earned at least $5 million in the fiscal year before an annual reconstitution every September. The minimum market cap for each stock is $200 million.
( Follow Saito-Chung on Twitter for more analysis and commentary on the stock market and growth stocks at @IBD_DChung. )
RELATED:
The Latest In ETF And Fund News
How Can You Finding Leading ETFs?
Can You Make A Million Dollars Trading ETFs? Yes, Here's How
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
