Why Indian Stocks Are Worth a Look

Editor’s Note: Below is a brief excerpt about India becoming an attractive emerging market investment from the July issue of Foundational Profits. We are now starting to get long of India. To see how we’re positioning, you can get the full issue here. 


Why Indian Stocks Are Worth a Look.

China’s re-opening has been lackluster and its central bank has already returned to cutting rates amid talk of new stimulus. 

As Reuters succinctly noted on July 10, “China's producer prices fell at their fastest pace in over seven years in June, while consumer prices teetered on the edge of deflation, adding to the case for policymakers to use more stimulus to revive sluggish demand.”

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But with a dollar less strong than it has been, there is still a case to be made for some emerging market exposure in your portfolio. So instead of buying all the emerging markets, albeit with a bias toward China, I started looking for single country exposure where the macro picture is improving. 

India emerged the leader. Its Manufacturing PMI is north of 58 and seemingly breaking out.

India emerged the leader. Its Manufacturing PMI is north of 58 and seemingly breaking out.

India also enjoys a comparatively superior fundamental setup with buoyant domestic demand fueled by government spending, moderating commodity prices, and strong credit growth.

S&P Global Ratings recently predicted that India will be the fastest-growing major economy in the next three years, with 6.7% average annual growth. 

Right now, India’s GDP per capita is near where China’s was 15 years ago. In total, Deutsche Bank expects India’s GDP to double to $7 trillion by 2030 from $3.7 trillion today.

This month, Goldman Sachs said that India will overtake the US to become the world’s second-largest economy by 2075.

This month, Goldman Sachs said that India will overtake the US to become the world’s second-largest economy by 2075.

And while that’s a bit far off to base current investment decisions on, what is happening now is increased cooperation between the US and India, particularly as Chinese tensions remain. 

Indian Prime Minister Narendra Modi just visited the US last month and met with Joe Biden and other political and business leaders — including Google’s Sundar Pichai and Microsoft’s Satya Nadella, who were both born in India.

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The Economist presciently noted ahead of the visit that: 

Few visitors can expect the sort of welcome Narendra Modi, India’s prime minister, will receive in Washington later this month. Joe Biden, America’s president, is throwing a formal banquet for him at the White House. The leaders of the two chambers of Congress, not to be outdone, have invited him to address a joint session for the second time—an honor previously accorded only to the likes of Winston Churchill. The visit will, in the words of a gushing White House press release, “affirm the deep and close partnership between the United States and India”.

In fact, the partnership between India and America has never been that deep or close. But America’s leaders, both Republican and Democratic, would like it to be. They see India as an indispensable accomplice in their rivalry with China. After all, India recently became the world’s most populous country. Its foreign policy has become more assertive and more hostile to China of late, even if it remains opposed to the idea of an American-led order. Its diaspora is the world’s biggest, and remarkably influential. But India’s allure also rests on the sense that its economy may at last be starting to fulfill its potential. It is already the world’s fifth-biggest. Mr Modi has promised growth of a sort that would turn it into a pillar of the world economy, on a par with America, China or the European Union. Despite the many failings of his government’s economic management, it is not an implausible target.

To get exposure I recommended opening a position in Indian stocks in the July issue of Foundational Profits. You can get access to that here. 

Call it like you see it,

Nick Hodge

Nick Hodge
Publisher, Daily Profit Cycle