Invest In India

Published in Investing Strategy on 23 July 2009

As an emerging market, India offers investors opportunities that are too good to ignore.

India offers an attractive investment opportunity. The question is how to minimise the risks while ensuring that you have exposure to the upside of investing in one of the world's most dynamic economies.

Economic growth

According to the IMF, after putting in several years of phenomenal economic growth in GDP (in 2007 it was 9.4%, in 2008 7.3%), India's growth will slow to 5.4% in 2009 before picking up to 6.5% in 2010. This is still less than China but substantially more than the developed economies of the US, Japan and Europe.

As you might expect India's economic growth has been reflected in the performance of its stock market. India's equivalent of the FTSE 100 is the BSE Sensitive Index, commonly referred to as SENSEX, a basket of 30 constituent stocks. In the past five years it has tripled in value from 4,993 on 21 July 04 to over 15,000 at the time of writing.

Risks

India is well noted for its bureaucracy and corruption and any investor needs to be wary as to where they invest their funds. Most recently, the Satyam scandal (India's equivalent of the Enron scandal) acted as a wake-up call to domestic regulators after its then boss Ramalinga Raju, admitted to a billion dollar fraud at Satyam Computers.

Just as embarrassing was the fact that it was only a few months previously that Standard & Poors named the computer company as a stock that Warren Buffett should be looking at. Luckily for him, he had more sense.

There are various ways to invest in India.

Managed funds

For the novice, managed funds are the safest way in which to gain exposure to the Indian market as they spread the risk over a particular group of shares, depending on which fund is chosen. 

There are numerous ones that concentrate solely on India including: Jupiter India fund, Neptune India fund, Fidelity India Focus fund and HSBC GIF India Equity fund. There are also the JPMorgan India Investment Trust (LSE: JII) and the New India Investment Trust (LSE: NII), managed by Aberdeen Asset Management.

Exchange Traded Funds (ETFs) are another way in but the choice here is more limited. There is Lyxor's ETF India or db x-trackers S&P CNX Nifty ETF.

Invest directly

If you want to get more involved and develop a Foolish view on India there are several India blue-chip stocks traded on the New York Stock Exchange and Nasdaq such as Infosys (INFY), HDFC Bank (HDB), ICICI Bank (IBN), Patni Computer Systems (PTI), Tata Motors (TTM), and Wipro (WIT).

One stock that is worthy of consideration for any portfolio is Infosys Technologies. It is India's second-largest software services exporter. Pre-tax profit for the year ending 31 March 2009 was US$1.5 bn compared with US$1.3bn in 2008. It also has a strong balance sheet with over US$2bn in cash and cash equivalents. Its management team seems pretty competent too.

If you choose to invest directly, it can be riskier, unless you do your research. However, the rewards also tend to be greater.

UK companies

Alternatively, you could look to gain limited exposure to India via UK companies that are investing and trading over there.

Tesco (LSE: TSCO) and Marks & Spencer (LSE: MKS) both have operations in India, seeking to take full advantage of its growing middle class and their demand for quality supermarket shopping.

Tesco is establishing a cash and carry business. In addition, Tesco has signed an exclusive franchise agreement with Trent, the retail arm of the Tata Group. Trent currently operates four Star Bazaar hypermarkets, with plans to grow to 50 stores over the next five years. Tesco will supply these hypermarkets with products and offer its retail expertise and technical capability to support the development of their business.

Marks & Spencer has also formed a joint venture with Reliance Retail (part of the huge Reliance Industries Group) with plans to open up to 50 stores. In March, M&S acquired Supreme Tradelinks, its former franchise partner and its 14 M&S stores. In April, it opened a new store in Mumbai and plans to open 10 to 15 stores within the next two years.

There are also riskier AIM plays heavily involved in India. These include property developer Hirco (LSE: HRCO), entertainment group Eros International (LSE: EROS) and power generator KSK Power (LSE: KSK).

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Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

theRealGrinch 23 Jul 2009 , 3:12pm

the indian stock market is at a 12-month high. this article would be more apt in March 2009.

JerryLow 24 Jul 2009 , 3:05pm
dfh10 20 Aug 2013 , 9:04am

Hi, I understand that Indian investment is getting more popular. I saw in the video: http://www.youtube.com/watch?v=JUh8PWEXS2s it has out paced Chine recently. One reason to Invest in India is manufacturing.

Is manufacturing a key reason to select India for investment currently?
Thanks

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