Thanksgiving week may be known for turkey dinners but this video shows us what it’s like to risk becoming chicken stew! Rather than discuss the general market mayhem, I thought we might digress to discuss an emerging nation, India. India came to the attention of many investors in 2003 when Goldman (I think we will start naming them Teflon Goldman for their inability to get stuck with anything sub-slime, I mean sub-prime) released its now infamous "Dreaming with BRICs" in which Brazil, Russia, India and China were hailed as four countries with enormous growth potential. Each has the common attributes of rich labor forces, economic reform initiatives and lagging living standards. No doubt the Indian economy has benefited from the US trend toward outsourcing, which is depicted in this Simpsons piece!
The statistics related to standard of living are startling. One third of all indians still live below the poverty line which means about 350,000,000 Indians survive on just $1.00 per day. Think about that next time you spent $30 on brokerage commissions! In order for India to raise its impoverished citizens to a higher level, multiple growth drivers are needed. Agricultural growth has moderately outpaced population growth and since almost 2/3rds of the country are dependent on crop revenues, this is a primary focus of the government. But India has grown its service industry (IT, business outsourcing etc) over the past 10-15 years and is increasingly viewed as a vibrant consumer market. Indeed it is expected that India’s population will outpace that of China’s within the next quarter century, becoming the world’s fifth largest consumer market with almost 600 million customers.
So what is likely to benefit? The Indian government predicts that the pharmaceuticals market will triple to approximately $25Bn in the next 2-3 years. It doesn’t seem that aggressive when you consider that drug penetration is under 30%. For comparison, take a look at the market capitalization of a company like Amgen that sits at almost $60Bn to put the numbers in perspective. It is expected that up to $50Bn in patents are due to expire in 2010 which Indian pharmaceutical companies will likely take advantage of also. Infrastructure is notably weak in India and will undergo massive transformation. Another interesting area is mobile telephony. Mobile service providers add over 70 million subscribers per year assuming continued rates of growth. Although major cities have already experienced 50% penetration, we need only look to some European countries that have over 100% adoption (yes that statistic seems impossible but some people do like to have 2 mobile phones!) to know that a double is still possible! Although Indians have adopted the mobile phone with open arms, they are still massive savers. Almost 80% of aggregate savings are accounted for by the 180 million or so households. Although 50% is usually kept in cash or cash equivalents, it is apparent from the performance of the recent stock market that a greater percentage than the 6% typically allocated to securities investments has found a home in riskier asset classes. If you could get 7% in the bank or many times that in the stock market, which would you choose?!
So how do you play India? As with most emerging economies, safety is paramount so a basket of stocks is often best. The INP, MSCI India Total Return Index is a free float-adjusted market capitalization index that is designed to measure the market performance of Indian securities. It is currently comprised of the top 68 companies by market capitalization listed on the Nation Stock Exchange of India. Another possibility is the IFN, which Yahoo profiles as: "India Fund, Inc. operates as a nondiversified closed-end management investment company. It primarily invests in Indian equity securities. The fund’s virtual portfolio comprises investments in cement; chemicals; computer hardware, software and programming, and training; consulting services; consumer nondurables; diversified industries; electricity; electronics and electrical equipment; engineering; extractive industries; fertilizers; finance; food; hotels and leisure; household appliances; media; petroleum; pharmaceuticals; retail stores; steel; telecommunications and equipment; textiles; transportation; vehicles and components; construction/building materials; and shipping sectors. Advantage Advisers, Inc. serves as the investment adviser of the fund. India Fund was founded in 1993 and is based in New York City." At this point neither has options listed but they are ticker symbols on my watchlist for the future. Inevitably these emerging markets will suffer from wild swings and they will inevitably present attractive market opportunities.
Aside: Yahoo held firm today in spite of the market selloff. Upgrades + Alibaba = Bull Trend?
