Oil 2.0: The Rise of India's Middle Class

Currently reading "The $10 Trillion Prize: Captivating the Newly Affluent in China and India" by partners at BCG. Reminded me about an investment proposal I wrote (along with 2 others) last year.

The portfolio described in the proposal has returned ~20% (positions entered in January 2013).

Take a look. Thoughts about India/China? Thoughts about the investment strategy? Discuss.

Link: http://www.scribd.com/doc/138162669/Oil-2-0-The-Rise-of-India-s-Middle-…

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Comments (4)

Best Response
Sep 11, 2014 - 7:09am

Hedging INR is not cheap, and the Indian market is quite volatile. Sure there is increased demand, but there are always issues in India (inflation, interest rates, shortages, corruption, abrupt changes in policy, all kinds of insider trading and lord knows what else - very very few people have been successful as pure India fund managers, much less investing in illiquid stocks in a highly regulated, politically sensitive area). Plus a bunch of the stocks they are talking about are illiquid. What are their brokerage costs?

May have returned 20% from inception (ie Jan 2013) but if one had invest in the NIFTY index in January 2013 they would be up 34% to date or thereabouts on local currency, or 36% had they done the S&P... I just took the most recent close number of the SPX/NIFTY and divided it by the 4 January 2013 close number.

I do however enjoy these macro discussions because they are intellectually stimulated, opinionated, full of facts and great arguments. Sometimes one can even get an investment idea....

I used to do Asia-Pacific PE (kind of like FoF). Now I do something else but happy to try and answer questions on that stuff.
  • 3
Sep 11, 2014 - 8:06am

Couldn't agree more with your first paragraph. In making this portfolio, we were constantly concerned about the political/investment climate. We did not personally invest into the basket since it is quite difficult to do with limited resources (anything under $100,000 would involve external costs that are just too high...). It would be great to hear someones perspective from within the investment sector in the country.

While The $10 Trillion Prize is a great insight into how companies can tap into the growth potential of China and India, my question is what can an average, everyday investor do to reap the benefits of this market? Due to the high barriers of entry into the financial market for individual investors (let alone foreign individual investors), would the best route be to invest in foreign companies that have committed to large scale roll-outs of their products/services in China and India?

Just throwing these questions out their to irk some interest and get back answers with a different perspective

Sep 11, 2014 - 11:43am

I would stay away from the Indian oil sector due to 3 reasons

- Public Sector Companies - All PSU's will continue to have an overhang in terms of footing the subsidy. You don't know what that amount would be but you definitely know that it will result in less than efficient cash flow for the company

- Private Sector - Cairn India & Essar - I used to love Cairn India but will avoid both Essar Oil & Cairn India due to corporate governance. Cairn India is generating lots of cash however Vedanta is channeling that money into other group entities at interest rates lower than market rates. On Essar we all know what they did about Essar energy

- Private Sector - Reliance - It is just too big & diversified that any expectation of above market return is a stupidity.

Conclusion - One is much better off investing in other sectors like BFSI.

Sep 11, 2014 - 12:03pm

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