The country with big potential by Darren Winters
We have covered this country on a number of occasions in the past, but until now we have been reasonably cautious on investing there. Some of our reservations are starting to subside as the country continues to become more investor friendly.
The country I am talking about is India. A few facts before I carry on; -
• India has a population of around 1 billion people. 31% of whom are under the age of 14; 50% under 25; and a massive 85% under 45. The median age is just 24
• India has some huge reserves of natural resources, it has the fourth largest reserves of coal, it also has large reserves of iron ore, manganese, mica, bauxite, titanium ore, chromite, natural gas, diamonds, and petroleum. It is currently the 24 largest producer of crude and has a number of majors exploring for new deposits.
• The GDP has grown by 6.8% per year since 1994. In 2004 this was 6.1%
• 23.8% of GDP is invested, compared to around 16% in the US and UK, and a massive unsustainable 46% in China.
• 50% of the GDP is earnings through service industries.
• Inflation is currently running at around 4.2%.
• The overnight interest rate is 5.1%
A friend has been travelling back to India for many years. Every time he returns he is more enthusiastic about the country’s developments. There are signs that there is some true wealth coming to the country, brought about by the huge service and Information Technologies and foreign companies that are keen to take advantage of the potential market.
It is far from a bed of roses, some 66% of the population work in agriculture that are operating at subsistence level meaning that many families are living below the poverty line. The country’s infrastructure is overloaded and often in poor hape and there is still a significant amount of state owned companies that are not efficient.
That said labour costs whilst still rising, are running at only 50 pence per hour (US$0.85). This ensures that the country’s corporates have a significant competitive advantage in some sectors. As highlighted in the proportion of the country’s GDP, the emphasis is on service rather than just goods.
The country’s political environment has been relatively stable since independence. No one party has complete power, which may explain why the pace that legislation is changed is quite slow. With regards to the international relations, we have witnessed improvements with India’s neighbours Pakistan and Russia.
Of the three key emerging markets of China, Russia and India, the latter has the most entrepreneurial population. It is within the culture to trade and make a profit. It has a rapidly increasing number of middle classes, who are building bigger businesses. Whilst India has one of the highest levels of illiteracy, those that do go on to college are almost guaranteed a job in one of the many Business Process Outsourcing companies or within IT.
India’s financial system is well developed having a large and active domestic retail and institutional investor base. The National Stock Exchange of India has around 800 companies listed and the Bombay stock market has a listing of around 6,000 companies. The banking system is stable having just 3.5% of non-performing loans.
One rather amazing statistic is that only 10% of India’s economy is dependent on international trade. This ensures the country is far more stable in the event of a major global turndown than many of its competitors. Whilst buying around one fifth of the worlds gold, they have not had the same impact on other commodities in the way China has. This may well change as they go about improving their over burdened infrastructure.
There are some significant business empires that are continuing to grow. Amongst these are Tata and Mittal. We covered the latter in a recent newsletter. Tata is a conglomerate of around 80 companies, which is a model of how some of the larger empires are developing.
Some may have heard of the name of Tata, it was building the City Rover, which was re-badged and sold in England. Tata also owns huge tea plantations in addition to Tetley, which it acquired to gain more up-stream control of its tea business. I think Rover may have been better off in their hands as they have just released a small sports car that has stole the attention in the Geneva motor show.
There are a number of ways of investing into some Indian companies. They are far from risk free but may offer rewards that reflect this. We generally prefer to buy stocks via either the UK or US stock markets. An alternative to risking your money in any one stock may be to invest in a trust fund. We know of a couple if you’re a high net worth investor. There is of course the likes of Aberdeen New India Investment Trust amongst others.
So in summary the outlook is significantly better than when we last looked. It is not all smooth running as any western turn down may also affect India. The infrastructure is far from great, but as this is improved so to should the economy
Regards Darren Winters
The country I am talking about is India. A few facts before I carry on; -
• India has a population of around 1 billion people. 31% of whom are under the age of 14; 50% under 25; and a massive 85% under 45. The median age is just 24
• India has some huge reserves of natural resources, it has the fourth largest reserves of coal, it also has large reserves of iron ore, manganese, mica, bauxite, titanium ore, chromite, natural gas, diamonds, and petroleum. It is currently the 24 largest producer of crude and has a number of majors exploring for new deposits.
• The GDP has grown by 6.8% per year since 1994. In 2004 this was 6.1%
• 23.8% of GDP is invested, compared to around 16% in the US and UK, and a massive unsustainable 46% in China.
• 50% of the GDP is earnings through service industries.
• Inflation is currently running at around 4.2%.
• The overnight interest rate is 5.1%
A friend has been travelling back to India for many years. Every time he returns he is more enthusiastic about the country’s developments. There are signs that there is some true wealth coming to the country, brought about by the huge service and Information Technologies and foreign companies that are keen to take advantage of the potential market.
It is far from a bed of roses, some 66% of the population work in agriculture that are operating at subsistence level meaning that many families are living below the poverty line. The country’s infrastructure is overloaded and often in poor hape and there is still a significant amount of state owned companies that are not efficient.
That said labour costs whilst still rising, are running at only 50 pence per hour (US$0.85). This ensures that the country’s corporates have a significant competitive advantage in some sectors. As highlighted in the proportion of the country’s GDP, the emphasis is on service rather than just goods.
The country’s political environment has been relatively stable since independence. No one party has complete power, which may explain why the pace that legislation is changed is quite slow. With regards to the international relations, we have witnessed improvements with India’s neighbours Pakistan and Russia.
Of the three key emerging markets of China, Russia and India, the latter has the most entrepreneurial population. It is within the culture to trade and make a profit. It has a rapidly increasing number of middle classes, who are building bigger businesses. Whilst India has one of the highest levels of illiteracy, those that do go on to college are almost guaranteed a job in one of the many Business Process Outsourcing companies or within IT.
India’s financial system is well developed having a large and active domestic retail and institutional investor base. The National Stock Exchange of India has around 800 companies listed and the Bombay stock market has a listing of around 6,000 companies. The banking system is stable having just 3.5% of non-performing loans.
One rather amazing statistic is that only 10% of India’s economy is dependent on international trade. This ensures the country is far more stable in the event of a major global turndown than many of its competitors. Whilst buying around one fifth of the worlds gold, they have not had the same impact on other commodities in the way China has. This may well change as they go about improving their over burdened infrastructure.
There are some significant business empires that are continuing to grow. Amongst these are Tata and Mittal. We covered the latter in a recent newsletter. Tata is a conglomerate of around 80 companies, which is a model of how some of the larger empires are developing.
Some may have heard of the name of Tata, it was building the City Rover, which was re-badged and sold in England. Tata also owns huge tea plantations in addition to Tetley, which it acquired to gain more up-stream control of its tea business. I think Rover may have been better off in their hands as they have just released a small sports car that has stole the attention in the Geneva motor show.
There are a number of ways of investing into some Indian companies. They are far from risk free but may offer rewards that reflect this. We generally prefer to buy stocks via either the UK or US stock markets. An alternative to risking your money in any one stock may be to invest in a trust fund. We know of a couple if you’re a high net worth investor. There is of course the likes of Aberdeen New India Investment Trust amongst others.
So in summary the outlook is significantly better than when we last looked. It is not all smooth running as any western turn down may also affect India. The infrastructure is far from great, but as this is improved so to should the economy
Regards Darren Winters
posted by Darren Winters at 12:31 PM
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