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India: The Investment Hotspot To Watch
BY RYAN DINSE - 10/01/2018 | VIEW MORE ARTICLES BY THE DAILY RECKONING

It won’t be news to you that Chinese economic growth over the past two decades has driven the Australian economy.

It’s made investors heaps of money, who have benefited from China’s undying thirst for Australian resources. As well as the knock-on effects that a surge in asset prices can create.

This is known as the ‘wealth effect’, and is a reason why politicians frequently look to policies that inflate assets.

If you feel richer, you’re likely to spend more.

Or so the theory goes…

Unfortunately, this newly-created wealth can disappear if the economy tanks. Leaving you no better off than you were before the boom.

General asset price inflation is therefore an illusion of wealth.

Real fortunes don’t suffer from this illusion. Sure, they can go up and down, but there’s a level where this is just scorekeeping, not life-changing.

Few make it to this level.

In Australia’s ‘China boom’, those who got in before anyone else were the few who made the real fortunes.

Early investors that spotted what was happening before it was public fodder got in on companies like Fortescue Metals Group Ltd [ASX:FMG] when it was trading for just 5 cents in 2003.

It hit a high of $13.15 just five years later.

And despite the later falls, it is still trading at $5.50 today.

There’s no question that spotting growth in emerging countries — economies in need of our resources — at the right time is a huge opportunity for Australian investors.

And luckily, I think there’s an equally compelling story right now that could have similar benefits for brave investors.

But it’s not China…

Let me explain.

India – The world’s top-performing economy

The opportunity is India.

India looks set to leapfrog the UK and France to become the world’s fifth largest economy in 2018.

A report by the Centre for Economics and Business Research (CEBR) states:

Despite temporary setbacks… India’s economy has still caught up with that of France and the UK and in 2018 will have overtaken them both to become the world’s fifth largest economy in dollar terms.

In fact, India is now the world’s fastest growing economy, and will likely be for many decades to come. It’s growing at a brisk 7% per annum.

That’s over one billion people coming out of relative poverty, increasing household income.

Good news for them. And good news for you.

As China slows under the weight of its debt-induced growing pains, India could be the one to take up the slack in driving global growth.

Indian Prime Minister Narendra Modi’s government has put in place crucial reforms, setting the country up for the next phase of expansion.

His government brought inflation down from 8% to 3% without causing a recession or even sacrificing growth.

That must count as a major achievement.

Modi also pushed through crucial GST reform to harmonise the country’s many different state tax systems.

So, could this drive a new resources boom? One to rival China’s story?

Well…maybe.

But it won’t be a carbon copy.

Being an open, democratic government, India is unlikely to embark on the kind of centrally planned infrastructure boom that China did.

It will be a more organic process. One that is messier and less obvious. But maybe that’s not a bad thing.

As far as government policy is concerned, the aim is to look for opportunities to inject themselves into new, high-value industries.

In that vein, India is likely to target industries such as computer programming and IT.

These are Industries still open to high growth. And, crucially, they’re not dominated in the way other industries like consumer electronics are.

India’s high level of education helps too.

It’s a smart strategy, provided they can pull it off.

Over time, a 7% growth rate feeds into all areas of the economy. Demand for consumer goods, buildings, cars, food and the little luxuries we take for granted slowly grows.

And when you’ve got a billion people — and one of the youngest populations in the world — this has big effects all over.

This in turn will benefit Australia and its resources industry over the medium term.

But there are a few more ways to play this coming boom.

How to get Indian exposure

Here are my top three ways to get exposure to this growing economy:

The first, and easiest, is through listed exchange traded funds (ETFs). You’ll find companies in this space that have a broad range of investments, including some Indian exposure.

A second opportunity lies in investing in companies targeting Indian consumers. These could be smartphone makers with relatively small market share in the country.

Apple Inc. [NASDAQ:AAPL] has been pursuing a range of tax and policy changes in recent months to help build out its iPhone assembly infrastructure in India. There are more companies like this you can find by digging into India’s ‘Made in India’ campaign.

Lastly, there are Australian resource companies.

As India gets richer, its need for infrastructure grows.

And with the resources industry still at relative lows, today’s investments may pay off handsomely in the years ahead. A few well-placed speculative punts might turn out to be fortune makers.



View More Articles By The Daily Reckoning

The Daily Reckoning's mission is to look at the investment world and the financial world in a sceptical and contrarian way. To do that day in and day out and tell you honestly what we see, even if it isn't always popular. If you'd like to subscribe to an alternative look at the mainstream interpretation of events, join for free here.



 

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