Let's say I'm a believer in the Indian mega-cycle theory that goes something like this: late 19th/early 20th century was the U.S. hyper-growth phase, late 20th century (early 21st) was China, early 21st will be India. What is the best way to get exposure to this market, and let's assume I know nothing about individual companies?
Do you just buy an India ETF? Invest with a fund like Matthews India Fund? Or would you just build up positions in the 5 or 6 Tata's, Reliance, ICICI's of the world? I would not be looking to trade this, but view it more as a retirement account set-it-and-forget-it type investment.
Any idears?
I would prefer the first option: buy an India ETF because his flexibility and transparency. Besides if you have preferences for any special stock you can increase your positions, buying it independently. This option also saves transaction costs, unless you have a big capital. In this case would be cheaper to manage your own investments, assuming you know how to do it.
With these kinds of markets I think it's often a good idea to invest with a team of people that operate locally and can exploit pockets of "inefficiency" through an informational/relationship advantage (not sure of specifics from a retail standpoint). I definitely wouldn't buy TATA, I heard the cars suck ass.
That's just one model of multitudes of car Tata makes that didn't do well. Tata Group is still one of the best top corporations in India.
Which ETF would you pick? Considering the size and potential of india i expect there must be quite some hedge funds out there which specifically target india.
Not sure if it's still the case, but groups like TATA typically have pretty horrible corporate governance with a complex structure plus it's largely controlled by the state/upper class families. The fluctuation of the rupee scares me as well with the fx risk involved. But I guess thats a problem most emerging markets face. No risk, no gain.
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I disagree. I think that each Tata subsidiary is a textbook example of bad corporate governance (actually I think it is truly shown as a textbook example at one of Damodaran's). They do trades among each other that makes valuation of specific businesses barely useful. Decision making is not about what's best for each business, but about what the family thinks it's "best" to Tata as a whole, and this last "best" may not be increasing shareholder value.
I will short india, the place and people are nasty
What kind of average return are you looking for? That is the question you need to ask yourself first. Is it necessary to take on all of the extra risk for a slightly inflated returns? Or are emerging markets the only place you can meet your long term return goals.
that's exactly the point that I would raise: Is the additional macro-risk worth the reward? I personally don't think so, at least not in the public equity markets. If you really want to benefit from an emerging market like India, I would start looking into things like infrastructure or real estate.
Hit the nail on the head.
OP, I share your optimism with regards to India. Having close links to the region through family and friends who have relocated there, their public markets leave a little something to be desired for socio-political reasons. The large companies (with the exception of a few multinationals) are family owned enterprises with shady corporate governance models. This combined with the fact that India is underpinned by a somewhat strict class and caste system means that inevitably the person running company X will most likely be a son, grandson, nephew, son-in-law etc as opposed to the most qualified candidate. To some this might be a sweeping generalisation but it bodes true for a lot of their public companies. The political system also has its fragilities with issues such as corruption and terrorism (on the more extreme end of the spectrum).
ETF's might be a play on the India but investors there, like many that I know, are looking real estate, infrastructure and retail. A friend of mine works for a European retail-orientated PE fund in Mumbai and sees that as massive growth market with an expanding urban population and middle class.
Exactly. If you're the kind of investor looking into products like ETFs, why wouldn't you invest your money domestically in something familiar that carries less risk? Emerging economies (China/India) aren't places I'd be putting my money as an average investor.
Exposure through an ETF is best IMO. Much lower fees compared to active managers - this is especially crucial if you are going to set-and-forget.
I don't think anything India meets the "set it and forget it" criteria for a retirement account just yet. Transparency will be a huge issue too -- I smell another China. Might make sense to long Indian banks and telecom in the shorter term though.
Wow wow, slow down there. Indian banks are in a lot of trouble here with high NPAs. DO NOT go long on Indian banks unless you sense a bailout coming.
Haha, excellent convo everyone.. I know this is a market that has been plagued by corruption and lack of organization around key infrastructure initiatives that seem to come so easily in China, but it seems like these are shorter term problems that can be largely cured. Much of my interest just comes from the demographics involved... China's population will age much more quickly than India's, and India should set up nicely to have a massive workforce when the rest of Europe, Japan, 'Merica and even China to an extent are filled with elderly.
I guess I don't have a specific return hurdle in mind. I think anything in the 10-12% annualized ballpark for equity exposure would be fantastic for a retirement account. I guess you could say i'm a bear on the U.S. at this point. I think inflation is going to show up in a big way over the next several years and it will cripple our economy and debt/GDP metrics, right when the boomers are stepping out of the workforce... I'm expecting real returns on U.S. equities to be quite low over the next decade, so would prefer to be exposed to a market where there is real organic economic growth. I also like that Raghu Rajan is head of the central bank there now - one of my former faculty from Booth -- they should be in good hands.
I think the ETF idea, perhaps paired with a couple individual stocks, might make the most sense in my case... Thanks for all the replies!
"I know this is a market that has been plagued by corruption and lack of organization around key infrastructure initiatives that seem to come so easily in China, but it seems like these are shorter term problems that can be largely cured. Much of my interest just comes from the demographics involved"
-- I wish I were as optimistic as you. As someone who was born in India and grew up there I'd say India will look more like Zimbabwe in 10 years than Europe. There is money to be made there - TONS but the only way to do it is via crony capitalism or straight up corruption. If you want outstanding risk and outstanding returns, India is probably the place for you but I'm not sure there's an Indian equivalent of buy and hold. For that you're better off investing in Uncle Sam. Whatever you decide to do though, good luck!
This thread is full of em tourists...
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Here's a blog i read - http://valueinvestorindia.blogspot.in/
I think the Indian version of Mr.Market is extremely bi-polar and schizophrenic.
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