Why respected investors and economists believe India will be the fastest-growing economy and potentially best-performing stock market over the next two decades. What are the risks that could prevent that from happening?
In this episode you’ll learn:
- Why the economy in India holds so much promise and what are the risks.
- What is a reasonable return expectation for the India stock market.
- What are passive and active options for investing in India.
Show Notes
Berkshire Hathaway buys a stake in India’s largest digital payments company—CNBC
Money Manager Gundlach Says Buy India. Here’s How—Bloomberg
DoubleLine’s Gundlach calls Indian stock market ‘scary’—Reuters
Interest rates, not oil, a worry for India: Ray Dalio—Economic Times
The Bhagavad Gita According to Gandhi
GDP – per capital—The World Bank
Urjit Patel, the head of the Reserve Bank of India, resigns—The Economist
What It Takes to Pull Off India’s Gargantuan Election—New York Times
Why do India’s elections take so long?—The Economist
India’s big, national parties vie for poor voters’ affections—The Economist
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Episode Summary
There are many opinions on whether you should invest in India at the moment. The majority consensus among the experts, however, is that it is an interesting and positive option. While the volatility may discourage some, the long-term expected return is promising. With one of the fastest-growing economies in the world, India isn’t an investment opportunity you should overlook. Be sure to listen to the whole way through for a helpful summary of the facts to consider when investing in the culturally rich and economically diverse country of India.
India’s culture is much like investing
David explores the culture of India to help listeners better understand the people and country they are investing in. Much of their culture is founded on the teachings of Hinduism. David refers to a Sanskrit poem and Gandhi’s teachings that the outcome of one’s actions isn’t all that matters. When we become engrossed in the outcome of our decisions and work, then we lose the gift of the present moment. What matters is the principle and sticking to a decision—an action.
Investing is quite similar. Investors must decide on an action without knowing the outcome of that action. They can speculate, but nothing is known absolutely when it comes to the economy. A good investor will look at an investment and consider whether or not it falls into alignment with his or her principles. The result will remain a mystery, but the investor can focus on taking action based upon experience and knowledge—and leave the rest to the future.
Understanding the political atmosphere of India
Knowing the political health of a country can help determine whether it would be a smart move to invest in it. India is a democracy. Over 2,000 political parties exist in India, and in order to secure a majority rule in parliament, a party needs to claim at least 272 seats. 900 million people are eligible to vote, creating a mad scurry to the polling stations that are only open for a short period of time. The current presidential election is being held over 39 days, and the result of the polls won’t be made public until late May.
The main topic of discussion surrounding this election is that of poverty. With 1.3 billion people, the economy is expected to grow as the middle class becomes more established, but there are still many who are unable to support themselves. David explores how two political parties have sought to establish themselves by promising a yearly salary to the poorest of the poor if elected. There are many successful poverty programs in India, however, and as the workforce grows larger, the economy should become more stable.
The reasons you should invest in India
David lists several reasons why considering an investment in India is a compelling choice. The country has very little debt, with the average household debt consisting of only 10% of its GDP. Businesses are expanding, creating growth in the economy. The population continues to grow as well, creating a future need for more goods while also supplying more workers. Women are also finding their independence in work, aiding the manufacturing world in producing more.
The central bank of India has kept inflation in check and has maintained independence, allowing it to cater to the needs of the economy. The current election, however, may see changes made to the running of the central bank.
The challenges and uncertainties to consider when investing in India
While there are many positives to investing in India, there are challenges to consider. One is the election. We do not yet know what the election outcome will bring in respect to the economy. Another challenge is the relatively high price to earnings ratio of stocks. With the economy expected to double—even triple in size over the next twenty years—it is an excellent opportunity for corporate earnings growth. The problem is that investors know and expect growth, driving the price of the stock upwards. The India stock market is expensive, but perhaps it is worth it when considering the rate of economic growth.
David also explores ways to invest in the India stock market utilizing both passive and active strategies. India ETFs have done well, with an average return rate of 7% over the past five years. While there has been some immediate volatility, the results in the long-run look favorable. Listen to the full episode for a deeper exploration of what firms and stocks to consider when investing in India.
David encourages listeners to consider India as one piece of their global and emerging market exposure. The economy is growing and expected to be the fastest emerging market in the world over the next couple of decades. The democratic elections may increase the volatility of the market, but the outcome of the election will be announced on May 23rd. Be sure to listen to the whole way through for an insightful look at what makes India a judicious option—and what uncertainties to consider.
Episode Chronology
- [0:18] What others are saying about Indian investments.
- [1:53] How India’s culture influences its investing.
- [5:41] A simplified glance at investing in India.
- [7:19] Current politics in India.
- [11:15] Positive aspects of India’s economy.
- [13:00] The challenges to consider.
- [16:59] What to invest in within India.
- [18:59] A look at active management in India.
- [21:07] In conclusion…should you invest in India?
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