The India Stock Market: An Interview with India Market Expert Karim Rahemtulla
by Alex Williams, Investment U
Tuesday, November 20, 2007: Issue #733
India’s stock market is up 571% in the last four and a half years. A return like that here in the U.S. would put the Dow over 55,000 today.
Not likely to happen any time soon…
But is the staggering run in India sustainable?
Our friend and colleague Karim Rahemtulla just got back from a 17-day “on the ground” research trip to the country. Karim, Investment U’s own emerging market specialist, is one of the shrewdest investors I know.
And when it comes to India, he’s our go-to guy…
This is Karim’s third fact-finding mission to the country in recent years. This time, he met with government officials and key personnel at some of India’s biggest companies – HDFC Bank, Infosys and Satyam.
He also met with the folks from Quantum Funds and Zee TV – India’s mega media conglomerate, whose operations span satellite broadcasting and cable distribution to music publishing and the creation of animation software.
This morning, I asked Karim to share some of his findings. Take notes!
~ Alex Williams
Publisher, Investment U
Alex Williams: In five years, will investors be kicking themselves for not buying into India’s stock market today?
Karim Rahemtulla: Yes, most certainly they will. But today is not the exact time to be buying into the Indian market. It’s overvalued by almost any measure, and due for a sharp correction within the next 12 months. That will be the opportunity.
I would say anything under 12,000 on the BSE [India's national index (^BSESN)] constitutes a buying opportunity.
Right now, India is enjoying a tremendous amount of foreign investment. These dollars, yen, pounds, and euros are chasing a very illiquid basket of stocks – never a good idea. Just consider that of the 7,000-odd companies listed in the Indian markets, fewer than 300 have trade volume of more than $1 million per day. That’s about what a small-cap stock trades in the U.S.
Alex Williams: What’s the growth rate look like in India, compared to, say, China?
Karim Rahemtulla: It is very similar, averaging in the high single digits. But India has a much lower base from which to grow…
GDP-wise, it is far behind China. The country has no export market to speak of outside of outsourcing and technology. And it has a very weak and fragmented manufacturing base. You don’t hear about “Made in India” for a reason. That being said, when you start from a lower base – and have the momentum at your back and the will to move forward – the future looks bright if you buy at the right time.
Alex Williams: What about India’s middle class? What are they spending their money on?
Karim Rahemtulla: Washing machines, flat screens, cars and eating out. Sounds familiar to the U.S., doesn’t it?
India has its own idea of the American dream, but it is slightly different in that it is about 30 years behind. The use of credit cards and mortgages is just starting to catch on. And this will have a multiplier effect on the economy; it already is. This will allow consumers to buy more than they could normally afford, generating more jobs down the line.
The downside, of course, is a reduction in savings rates and the tendency to over-consume.
Alex Williams: What are India’s three fastest-growing industries?
Karim Rahemtulla: Outsourcing, high technology and entertainment top the list, with banking and vehicle manufacturing running close behind.
India has a lot of people – that’s not news. But the companies that can satisfy the growing consumption needs of these people will be the ones that succeed.
The industry with the most potential is actually the infrastructure business. There are more good paved roads in Texas than in all of India. There is a long way to go.
Alex Williams: Any particular companies you’d like to own right now?
Karim Rahemtulla: I would be dipping my feet into the software and technology sector. Companies like Infosys (Nasdaq: INFY) and Satyam (NYSE: SAY) are experiencing some decline in share price due to the strong rupee. That will change as the Indian government intervenes to weaken the currency. It’s in their best interest.
Both companies are growing at 20% to 30% per year and are fundamentally strong, generating millions in profits and cash. Infosys just had its first billion-dollar year, in terms of profits.
Alex Williams: You mentioned the illiquid nature of India’s stock market. Is it safe yet, for U.S. investors?
Karim Rahemtulla: Yes and no. Any emerging market is prone to volatile swings. India’s market is no different.
Alex Williams: How many companies are available for purchase through ADRs?
Karim Rahemtulla: Unfortunately, there are few stocks available to U.S. investors, in terms of ADRs. And that makes investing in India a very tricky proposition.
Alex Williams: How about ETFs? If someone wants to “own” India in one fell swoop, is there an ETF to consider?
Karim Rahemtulla: The iPath MSCI India Index Fund (NYSE: IPN) is worth looking at. It tracks the MSCI India Total Return Index. And Infosys is its #1 holding, at 13.7%. Satyam is also in its top 10 holdings, accounting for 3.3% of the fund’s assets. And its expense ratio is less than 1%.
Alex Williams: Thanks, Karim.
Karim Rahemtulla: My pleasure.
Any investment contains risk. Please see our disclaimer.
5 Responses to “The India Stock Market: An Interview with India Market Expert Karim Rahemtulla”
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Hi,
The market is currently enjoying a good rally which has seen most stocks gain from competitive advantage. It would be advisable for all stock market enthusiasts to seize this opportunity and plan their investments in a safer, yet more conducive, stock market. With NIFTY hovering around 4800 – 4900+, it’s expected to take hold of this currently rally and, realistically, be closer to 5000 more so than before – in what should be its new 52-week high.
Not many untouched stocks are still there which are ready to blast off at any moment.
Regards
The ShareTipsInfo Team
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Hi , Very good information you are providing at here . Thanks for your knowledege , it vreally helps me a lot.
Regards
Anjali
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Spot on post. Great read with my nightcap
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Study Indian stock market well. Before Investing. Choose the stock by Fundamental analysis.Take buy or sell decisions only after a perfect technical analysis. Indian Technology companies are good for investment. Biotech and stem cell research companies are possible target areas for further analysis and research.
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Great post. A clear picture of indian stock market represent in post.
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