September 17th, 2021

The Number One Country to Bet on Now

Dear Rebel Investor,

It was just before dawn when my train pulled into the station.

I surveyed the scene outside from the comfort of my first-class car.

It was shocking.

The railway platform was packed with ragged people sleeping under soiled blankets.

Others – wraith-like, shadowy figures – were wandering around like zombies.

And there were more than a few families huddled over makeshift fires of twigs and paper cups, trying to stave off the early morning chill.

No one bothered to look up as our train ground to a halt.

Their vacuous eyes said it all.

They had given up hope. 

­

What I just described occurred at a train station in Pathankot, India.

It’s one of 7,000+ train stations in the country – shelters of last resort for India’s homeless.

In 1993, when I was traveling through India, there were an estimated 2.3 million homeless people there.

Now there’s about 1.8 million.

That’s still a horrific number…

But it’s a big improvement and is indicative of where India’s headed economically.

And that’s UP.

In fact, the country’s economy grew 20.1% year-over-year for the April-June fiscal quarter of 2021.

That’s a record for any quarter of Indian economic growth.

Pro-business moves from Indian Prime Minister Narendra Modi have had a lot to do with this surge.

Since taking power in 2014, he’s…

As a result of these and other moves by Modi, India’s GDP shot up from $2.04 trillion to $3.04 trillion since he took office.

That’s 49% if you’re keeping score.

Investors are betting big on continued Indian economic growth

Huge inflows of foreign direct investment (FDI) attest to that.

For example, from April to June 2021, FDI into India hit $22.53 billion.

That’s 90% higher than the same time frame last year.

In fact, it represents the highest level of Indian FDI for any fiscal three-month period.

There are three main reasons all this money’s pouring into India:

 

  1. Favorable Indian Demographics

 The country has 1.38 billion people (and counting). 

Much of the population is comprised of a youthful, educated workforce.

In fact, the median age is just 28.

These people are just now moving into their prime spending years.

That means they’ll have more and more cash to spend.

All that spending should keep stimulating India’s economy for decades. 

 

  1. Economic Diversity

In terms of GDP, India’s economy is the sixth largest in the world at $3.04 trillion.

And it offers investors exposure to a wide range of opportunities.

They include consumer goods, pharmaceuticals and knowledge-based industries like IT, software and business services.

 

  1. President Modi’s Economic Reforms

Aside from the ones I mentioned earlier, they include a nationwide goods and services tax that’s replacing a patchwork of state-level excise taxes.

All these reforms have made doing business in India much easier.

As a result, India’s World Bank “Ease of Doing Business” ranking has leapt from 130 to 63 since 2018.

With President Modi slated to be in office for at least another three years, that ranking is likely to improve further.

So should the performance of India’s stock market.

Right now it’s the world’s seventh largest, with a market cap of $2.7 trillion.

That’s bigger than the markets of Canada, Germany and Saudi Arabia.

It was also the second-best performing stock market in the world in 2021.

That puts it on pace to overtake France as the world’s sixth largest.

How to play India’s near-certain growth

For North American retail investors, the best way to invest in India is through an exchange traded fund (ETF).

Not counting inverse and leveraged ETFs, there are eight that trade in the U.S.

And they’ve been on a tear.

In fact, they’ve outperformed the S&P 500 over the past 12 months (45.1% to 34% as of Aug. 1, 2021).

The best three performers:

  • First Trust India NIFTY 50 Equal Weight ETF (NFTY)
  • iShares MSCI India Small Cap ETF (SMIN)
  • Wisdom Tree India Earnings Fund (EPI)

They gained 52.3%, 71.5% and 54.4%, respectively over the last 12 months.

For my money, I like the iShares India Small-Cap ETF (SMIN).

The reason?

It focuses on my favorite kind of stocks – small caps.

In this case, the small-caps in SMIN are highly-domestic oriented.

I think that enables them to fare better as spending increases in rural India.

That spending should surge, thanks to a $265 billion stimulus package Modi pushed through in May 2020.

Right now SMIN trades at $59.35.

That’s 156% above its 2020 low of $23.12. 

I see no reason it won’t continue rising.

(Hopefully,  the prospects of India’s homeless rise along with it.)

That’s it for today.

Cheers,

Doug Fogel
Contributing Editor, Dear Retail

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