Some say investing in emerging markets is best left to the pros. After all, they have the time and resources to devote to ferreting out compelling investment opportunities across the globe.
But today, emerging markets are more and more accessible to the regular investor. With just an Internet connection and an online brokerage account, any enterprising individual can gather the financial information needed to profit from stock markets on the other side of the world.
Why Should You Care About India?
India stands out for its huge upside potential. The latest stats put the population at just over 1.1 billion, making it the second largest country in the world behind China. India's population is also extremely young, with a median average age just under 26 years. [Click here to read more about What You Didn't Know About Asia's Next Powerhouse.]
India's economic growth has been stunning -- it's annual growth has averaged in the high single digits for some time. This includes the more than +7% annual growth during the credit crisis that knocked more developed economies flat on their backs. From the beginning of 2009, India's Sensex index is up +115.6%, while the DJIA trails along at +37.1%.
India should see many more years of above-average growth as the highly-educated population (many of which speak English in addition to Hindi) becomes more involved in high-growth industries like information-technology outsourcing. Additionally, India is becoming increasingly focused on economic liberalization to further encourage growth and allow foreign investment. This openness is already paying off -- an estimated 100 companies in the Fortune 500 have established research and development centers in India.
Investing in India
The stock market in India is also well-developed. Publicly-traded companies boast a combined market value of $1.2 trillion, which is currently about the 14th largest in the world. The Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), both of which are based in Mumbai, account for the lion's share of company listings and trading volume.
A simple way for U.S.-based individuals to invest in India is through domestically-traded American Depositary Receipts, or ADRs for short. Currently, more than 20 Indian-based firms have securities listed on U.S. exchanges. These firms are among the largest in India and have international client and investor bases. They count as pretty safe investments given they are market leaders and financially sound.
For bottom-up focused investors, Indian blue-chip firms can also be invested in via the multitude of ADRs trading on U.S. exchanges. Two standouts include Infosys (Nasdaq: INFY) and Wipro Limited (NYSE: WIT), which have grown into world leaders in the Information Technology outsourcing industry. Tata Motors (NYSE: TTM) has evolved into a leader in the global automotive industry with the acquisition of the Jaguar and Rover brands. It has also proven itself as an innovator -- they're able to sell the Tata Nano at an entry price of only $2,000. Finally, Dr. Reddy's Labs (NYSE: RDY) is one of the world's largest generic drug manufacturers and should continue to pick up as billions of dollars of branded pharmaceuticals lose patent protection over the next 10 years.
Smaller local companies, though they have a higher degree of overall risk, should also grow fast alongside the overall Indian economy. Investors can invest in ETFs or mutual funds to gain exposure to these smaller local firms. The Powershares India ETF (NYSE: PIN) offers broad-based exposure to the country, as does a closed-end fund aptly called the India Fund (NYSE: IFN). The iShares S&P India Nifty 50 Index (Nasdaq: INDY) is another interesting play on some of the larger firms in the market.
For the vast majority, the best and safest way to invest in India is through mutual funds, ETFs or domestically-traded shares of Indian companies. However, there is another way to invest directly in these companies. An individual with a high net worth can be set up to invest directly in India. Other ways to invest include setting up shop as an institutional investor, be it a mutual fund, hedge fund, or asset management firm. These are referred to as foreign institutional investors, or FII, which are allowed to invest in securities issued directly by companies in the primary market or in the secondary BSE or NSE stock markets listed above.
