A billion reasons to invest in India
A young population, growing middle class, and booming economic growth. All good reasons to invest in China, right?
Not so fast. Those are all good reasons to invest in India, too, according to Excel Funds Management Inc.
"All of a sudden, India is on the map. Everybody is talking about India," Bhim Asdhir, Excel's president and chief executive told a breakfast presentation earlier this month. "Twenty years ago, India was considered a poor country. Today, India is marching forward to join the ranks of the middle class. And therein lies the opportunity."
India is the fourth-largest economy in the world behind the United States, China and Japan. It is expected to overtake Japan, moving into third place in the coming years as its economy is projected to grow at about 7 per cent or 8 per cent a year. That's about double the growth rates for most G-8 countries.
India's biggest strength lies in its demographics. India's population stands at about 1 billion. A staggering 54 per cent of that total is under the age of 25 — think of America in the 1960s, only on a much larger scale.
"This is where the market is going to be. The workers are going to be here. They are going to be earning and spending," Nishad Shah, portfolio manager of the Excel India Fund said during the presentation. India's middle class stands at more than 300 million and is expected to grow to 750 million during the coming decade.
By now the story of India's prowess in computer software and information technology is well-known. These types of well-paying jobs are boosting incomes among India's middle class, which is quickly discovering its appetite for cars, cellphones and other gadgets. The potential market is a dream come true for makers of consumer goods.
The Excel India fund, with its pricey MER of 3.89 per cent, is the only fund in the Canadian market that invests exclusively in India.Its top holdings include Bharti Televentures, the country's largest mobile-phone company, State Bank of India, which is India's largest bank, chemical exporter United Phospohorus, and LIC Housing Finance.
The fund struggled through the first quarter of this year, dropping 2.1 per cent, but returned a whopping 83 per cent in 2003 and 31 per cent in 2004.
The Emerging Markets fund from Guardian Group of Funds has about 10 per cent Indian content. Its Indian holdings include conglomerate Reliance Industries, Bajaj Auto, computer services firm Satyam; aluminum miner Hindalco Industries and State Bank of India.
"It's a remarkable transformation from 15 years ago when I was in Hong Kong. Back then you didn't even bother about India because it was so difficult to deal there," Guardian's Gavin Graham said of India's rise.
China is considered to be well ahead of India in terms of economic development and foreign investment. But India is considered to have an edge in some areas, including its democratic system of government, high- quality exports such as software and pharmaceuticals, a sea of English-speaking university graduates, and public companies that have a good handle on accounting and disclosure issues, a legacy of British rule.
Aside from general concerns about what impact a rise in interest rates and the high price of oil would have on economic growth, there are other worries specific to India.
As with many democracies, a sudden change in government can send the stock market reeling. That happened in India last year. And it wasn't long ago that India and Pakistan were gnashing their nuclear teeth at one another, though tensions have eased.
The perennial question is how India's huge underclass will be brought into the developing economy. As Shah said, "China is built in terms of infrastructure. India has to be built."
With its more robust system of government and high-quality export industries, India shouldn't be counted out of the race just yet, Graham added.
India may be the "tortoise catching up with the hare," he said. "Inevitably it's slower and messier and there's areas where it's still not working, but that goes with the situation."
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Madhavi Acharya-Tom Yew writes about mutual funds every other Saturday. She can be reached at macharya@thestar.ca |
