India: Attractive Investment? Or Not…

On The Money

Of all the crazy events in 2008, seeing the Taj Mahal Palace hotel in flames on TV is one I’ll remember for a long time.

India had a rough year in 2008. It had such a good run – five years of nearly 9% economic growth and a booming stock market – that it had reason to feel it was Fate’s spoiled darling. But in a long and checkered life, a good many things come unstuck. And so India has.

In 2008, its stock market lost 60% of its value. The rupee lost 20% against the dollar. Foreign investors pulled out in record numbers. India’s best companies struggle. The global economic freeze walloped India hard.

So the question is should you buy India or forget it?

India is a place of staggering contradictions. On the one hand, there is “the Indian miracle.” There are the booming companies and spotless IT campuses. The many millionaires minted daily. Yet there is also awful poverty. The World Bank estimates some 420 million people live below the poverty line. That statistic doesn’t capture the awfulness of it at all.

The biggest slum in all of Asia, Dharavi, lies right in the heart of India’s Manhattan, Bombay. Over some 520 acres live 600,000 people, with one public toilet per 800 people. It is a place of unbelievable filth. Yet many people in India seem to ignore such slums. Yet there is a lot of good in India. And the promise of India, even now, is still enormous.

Consider that even as growth forecasts come down from 9% to 5%, India is still one of the world’s fastest-growing economies. Its people are young and hungry for a better life, unlikely to unbutton the old waistcoat and put their feet up. Half of India’s population is under 25 years old. There are many English speakers. The savings rate is near China’s lofty levels. “The crowning reason for optimism,” opines The Economist “is the savings rate.” Unlike the U.S., India is a nation of savers.

And there are many needs and opportunities. India’s road network is the world’s second largest, but in need of further upgrades. Power outages are common in Indian cities, too. India plans to spend nearly $500 billion on infrastructure over the next five years. Power generation alone should increase 14% annually over that span. It’s no wonder that India is one of the better markets for electrical infrastructure giant ABB.

On a more micro level, there are good companies here available on the cheap. The economic deepfreeze won’t last forever. If you can sit on Indian investments for a few years, my guess is you will be amply rewarded.

On December 21, 2008, the Taj Mahal Palace hotel reopened for business, 24 days after the terrorist attacks. It will take longer, but India’s market will recover, too.

Rilian Ball, is managing partner of Visalia’s only boutique mortgage company whose specialty is empowering clients with insight and depth of knowledge to make educated decisions about Real Estate finance. Visit ValleyTrends.com for a free report on value stocks provided by Quest Asset Management.