Sunday, April 02, 2006

Investing in India

This is a rehash and update of the previous article where we discussed some of the pros and cons of investing in India. In the previous article we discussed the Indian stock market, some factors in Indian economy, some of the Indian companies listed in the U.S stock market and some of the mutual funds that allow one to invest in India. After the Bush visit to India, there is renewed interest about India in the U.S. Recently, Newsweek carried an article on India where it called India the rising power. In this article, we are going to re-examine India and investment opportunities.

First let us look at the similarities between the U.S and India. Both are very diverse countries with multi cultural democracies. India has had a stock market for more than one hundred years and has deep roots in entrepreneurship. The Indian government has been moribund but the economy has galloped through individual ingenuity. Another similarity between India and U.S is the high amount of internal consumption. India has a very large population and unlike other countries in Asia, runs a trade deficit with the rest of the world. No one knows if running a deficit is a good thing or a bad thing, there are opinions on both sides. Countries that rely on exports have had problems as exemplified by the Japanese and European economy in recent times.

The differences are also stark. U.S has good infrastructure and some world leading companies. India lacks infrastructure and has a very large population that is below the poverty level. However, the stock market is always focused on the future. Future in India looks very bright with economy for the next two years being predicted to grow at the rate of 8% or higher by the U.N. Let us look at the mutual funds investing in India and the Indian companies trading in the U.S stock market.

First the mutual funds and ETFs. Unfortunately, there is no ETF that exclusively invests in Indian market yet. Hopefully, an ETF will be available to U.S investors in the near future. Meanwhile IShares Emerging Markets Index Fund, EEM provides about 6% exposure to India. Vanguards VWO provides about 6% exposure to India as well. VWO has a lower expense ratio compared to EEM and the fund hasnt been around enough to see if EEM provides better returns than VWO.

Then there is IFN - the India Fund Inc. (expense ratios are from morningstar) The fund has done really well but has an expense ratio of 2.74%. There is also IIF - Morgan Stanley India Investment Fund with an expense ratio of 2.5% as well. Both the funds have done extremely well in the past twelve months.

There is ETGIX ( Eaton Vance Greater India Fund ). According to both Morningstar and Fidelity, this is a fund that charges front end load for balances less than a million dollars. It also has management fees, 12-b1 fees, an expense ratio of 2.77%.

There is MINDX ( Mathews India Fund ) has a 90 day redemption fee. It has an administrative fee of .25% and management fee of .75%.

Both these funds have done extremely well this year and will probably will continue to do well in the next couple of years.

Let us take a quick look at the Indian stocks trading in the U.S market to see how they are doing.

INFY - Infosys Technologies Limited. This traded for $78 in the U.S market with a P/E of 41. It trades at a discount in the Indian stock market for about $68.

SAY - Satyam Computer Services. It trades for $44 in the U.S market with a P/E of 30. It trades in India for about $20=00 in the Indian market. It is likely that the U.S ADR is equivalent to two stocks in the Indian market.

SIFY - Satyam Infoway trades for about $14=00 in the U.S market. I couldnt find the equivalent share in the Indian market.

WIT - Wipro Limited sells for about $12 in the Indian market but sells for about $15=00 in the U.S market.

HDB - HDFC Bank Limited. Trades for $54.50 in the U.S stock market and goes for about a third in the Indian market. Indian shares are equivalent to 1/3 of their U.S ADRs.

IBN - ICICI Bank Lmtd trading for $28 and goes for about $14 in Indian stock market. U.S ADR is equivalent to two stocks in Indian market.

VSL - Videsh Sanchar Nigam Limited for $22 and sells in India for about $11. U.S ADR is equivalent to two stocks in Indian market.

MTE - Mahanagar Telephone Nigam Limited for $8 and for about $4 in India. U.S ADR is equivalent to two stocks in Indian market.

RDY - Doctor Reddy's Labs for $31 and for about the same price in India.

TTM - Tata Motors Limited trades for $21 and for about the same price in India.

PTI - Patni Computer Systems Ltd trades for $20.45 and for about $11 in India. It is likely that the U.S ADR is equivalent to two stocks in the Indian market.

MT - Mittal Steel Company, NV trades for $37.75. Couldnt find an equivalent stock in India.

There are numerous opportunities to invest in India for U.S based investors. The Indian economy is expected to continue to do well in the next couple of years and the underlying fundamentals are strong. The democratic underpinnings provide a good foundation to India and make it less volatile compared to some of the other emerging markets.


Missed one company in the original report.

REDF - REDIFF.COM Selling for $22.5 in the U.S market.


Devendra Rusia said...

The article did not compare the US price and Indian prices of the shares properly, e.g., IBN - ICICI Bank Lmtd, 1 US ADR = 2 Indian shares. Therefore, the difference in US and Indian prices for this particular share is not as much as it appears in the article.

changpeng05 said...

Good comment - some of the comparisons might be off especially the ones with >30% difference.


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sensible article. right now there is no gravy left. even when its fairly valued, whts the guarantee the stocks will pick momemtum. I htink the 3 year rally is over. its time to sit on the sidelines.

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