(The opinions expressed here are those of the author, a
columnist for Reuters.)
By John Wasik
CHICAGO May 27 Although the world's largest
democracy has been hobbled by inflation, a declining currency
and difficult business environment, the pro-business Bharatiya
Janata Party that just won an epic election in India has
engendered optimism that the country can turn around its sagging
It's time to increase your exposure to India's stock market.
The timing is good with equities in India perking up of
late, something that isn't happening in the other "BRIC"
emerging markets of Brazil, Russia and China.
The $1 billion WisdomTree India Earnings ETF, the
largest exchange-traded fund investing in Indian stocks, has
climbed 27 percent over the past 12 months through May 23 and is
up 31 percent year-to-date. The fund holds large companies such
as Reliance Industries Ltd, Infosys Ltd
and Tata Motors Ltd. It charges 0.83 percent
for annual management expenses.
For a play in smaller Indian companies, consider the Market
Vectors India Small-Cap ETF, up nearly 40 percent over
the past 12 months and nearly 55 percent year-to-date. It costs
0.93 percent annually for expenses and holds stocks such as
Apollo Tyres Ltd, Ramco Cements Ltd and
Hexaware Technologies Ltd.
NEEDS FOR GROWTH
Before digging in too deeply, be aware of the risks of
investing in India. The bureaucratic business environment is
tough to navigate, as well as corrupt. And the Indian economy is
still sluggish - in the last fiscal year, growth slowed to a
10-year low of 4.5 percent from a high of 10.4 percent in 2010,
according to The World Bank.
If new Prime Minister Narendra Modi can pull off a
turnaround, demand will increase for banking services/credit,
construction, consumer goods and vehicles. The Modi-led BJP
government may also ramp up trade with China and other growing
Inflation, hovering around 10 percent, continues to hamper
the Indian economy. The central bank has raised interest rates
three times since September 2013. Along with a pronounced drop
in the rupee against the U.S. dollar, the country has been stung
by the U.S. Federal Reserve's pullback on its bond-buying
stimulus, which had pumped billions into developing nations like
Neena Mishra, director of ETF Research for Zacks Investments
in Chicago, sees India as a good long-term investment since
renowned economist Raghuram Rajan took over as the governor of
the central bank of India.
"The central bank has taken a number of positive steps in
the past few months, towards bringing down inflation,
liberalizing financial markets and strengthening the monetary
policy framework," Mishra says.
Although tangible economic progress has been seen as slow to
Western eyes, India's development and social progress is largely
a success story that will accelerate if economic growth picks
More than 50 million people were lifted out of poverty as
India's share of global domestic product rose from 1.8 percent
to 2.7 percent, the World Bank reports. Growth is expected to
increase to nearly 5 percent in the most recent fiscal year; to
almost 6 percent in the 2014-2015 fiscal year; and 6.5 percent
the following year. If those forecasts prove true, India would
trail only China as the largest and fastest-growing developing
While India's reboot could take years, keep in mind stocks
listed on Indian exchanges will continue to be volatile. The
WisdomTree fund's returns, for example, have been all over the
board. After climbing 95 percent and 20 percent in 2009 and
2010, respectively, the fund lost 40 percent in 2011 and 9
percent last year after gaining 25 percent in 2012.
That means India shouldn't dominate your global stock
holdings, but represent a "satellite" position that includes
other emerging economies.
(Follow us @ReutersMoney or here;
Editing by Beth Pinsker, Lauren Young and Nick Zieminski)