What India Can Learn From China and Japan
What kinds of changes does India need to make, you ask?
India needs to take a cue from China, which closely studied Japan’s successful transformation following WWII. This means dramatically engaging the West as a means of increasing technological prowess, global best practices management and foreign direct investment — all of which translate directly into bottom line results needed for healthy capital markets and sustained investment.
In his book “Superpower?” author Raghave Bahl makes a similar case. Bahl notes that while this will lead to huge “terrifying dualities,” the changes are a necessity for India’s future.
Specifically, he cites the massive imbalances that exist between investment, which represents roughly 50% of China’s GDP, and consumption.
At the same time, though, I’d like to submit that what China has done is simply without precedent. There has never been another nation in history that has pulled itself up from poverty to become the world’s second largest economy in a matter of decades.
But there could be in India – beginning with a dynamic investment in the country’s electrical grids.
So what do you with your money?
Limit your exposure to India or underweight it if you prefer that term. India is not ready for prime time yet.
Investors can expect more internal trouble to surface. That’s going to cool economic growth more rapidly than most experts expect.
What’s more, I expect India to receive multiple ratings downgrades in the next twelve months– not the least of which will cause it to lose its investment grade status.
If you just can’t stay away and have deep enough pockets to consider India in a more speculative light, concentrate on what India’s blossoming population needs rather than what it wants.
EU, U.S. and Chinese stimulus will eventually flow around the world with some of it winding up in India. Good choices include companies like ICIC Bank (NYSE:IBN) and Tata Motors (NYSE:TTM). Both are beaten down significantly from their 2007 highs, which makes them contrarian plays in the purest sense of the word, given the overall outlook.
There’s also the Wisdom Tree India Earnings ETF (NYSE:EPI).
Roughly 30% of the fund is concentrated in industrials, which means you’ll have to put up with what could be extreme volatility as India gets back on its feet. You may also have to wait a while.
And finally, investigate the Franklin India Prima Plus. Traded directly on the Bombay exchange, the fund offers a healthy 10.60% yield that may be worth the ups and downs you’ll have to endure as India transitions.
For me, I’d just like to see them keep their lights on first.