Don’t Ignore India and other Developing Countries

Date: March 14, 2010
We are living in a world where it is no longer possible to ignore the third world countries. G-6 has become G-8 and now it has become G-20. If developed countries need developing countries for their high level collaboration, We as the investors need them for our portfolio growth.
SPY represents the S & P 500.
QQQQ represents NASDAQ-100 stocks.
VEIEX represents the Vanguard Emerging stock market index.
INDEX Price on
Jan 2000
Price on Jan 2010 ROI CAGR
SPY 139.56 115.46 -17% -2%
QQQQ 90 47.36 -47% -6%
SENSEX 5414 17540 224% 12%
VEIEX 12.24 26.62 117% 8%
I have taken the data for the period of Jan 2000 to Jan 2010 or the last 10 years performance which is the most important period for many of us who are in 30s and 40s, who are in the prime earning years of our life time.
Portfolio performance in this period matters significantly to all of us, since most of our savings gets invested in these years. It is easy to see those who invested in US broad index lost a decade while those in India and
other emerging countries made very good gains in the same period.
Those who are living in India and those who plan to return to India have to pay more attention to this impact. Whether we like it or not, we all are in the race and compete for the same kind of goods and services at the same time. Be it school admission or college admission or consumer goods like Cars, appliances or vacations. We all compete with our peer group who are in the same age. If one group made significant gains and another group lost a decade of investment growth in the same time frame, the disparity will show up in our lifestyle quickly. Please note women notice such things earlier than men. In terms of life style, affordability and major purchase decisions, the groups will have different decisions based on their financial viability. Financial viability is supported by asset base and asset base is decided by savings potential, investment decisions made and portfolio growth. You can’t afford to be a slacker or couch potato.
If you are an r2ier or planning to return to India, even though you might have earned money in US$, you lost that important advantage due to poor performance of asset selection and might hinder competing with your peer group in India for goods and services. Looking at the table you can clearly see, S&P investors are almost in the same position as they were about 10 years back, those who invested in India have multiplied their assets 3 times.
Lesson :
Don’t ignore India in your investments. If Americans, Europeans and Japanese can’t ignore India, Indians, especially those living in India and planning to return/retire in India, can’t ignore India. Create a room for Indian investments in your portfolio, if you have not already done so.
How much asset allocation one need for Indian stocks?
Indian markers are volatile like any other emerging markets and prone to huge fluctuations. It will be like a roller coaster ride. Don’t tell me I did not warn you. Some can’t stomach the volatility. Symptoms are nausea and vomiting. Those who are pregnant and heart problems, don’t get on board. I usually recommend 10%-15% of overall portfolio allocation and not more than 1/3 of overall stock portfolio. This is general rule of thumb. If you are older and have no plans to go abroad again, you may have bit more allotted for Indian stocks and real estate. Your mileage may vary based on several factors. Contact me if you need help in deciding proper allocation.
How can I participate in Indian markets? Can you help? Yes. Please contact me.
Refer to following exhibits:
  •   Exhibit -1: Sensex doubles in last one year
  •   Exhibit -2: Indian Industrial Production figures see huge growth against last year.
  •   Exhibit -3: India offers better long-term returns on stocks than China
  •   Exhibit -4: Mukesh Ambani, Lakshmi Mittal among world’s top ten billionaires. (Indians and other Asians are replacing Americans in the billionaire list. It is not just happening only in the top. This change occurs in each segment. )
  •   Exhibit -5: FII have invested over 10,000 Crores after the budget in few days.
  •   Exhibit -6: Size of Capital market of World Stock Exchanges ( while Share of the US capital market compared to the world market is shrinking, size of the capital markets of emerging countries are growing )

Exhibit -1: Sensex doubles in last one year – Times of India ( March 10, 2010 )
       Mumbai: The stock market witnessed a lackluster trend on Tuesday, the one-year anniversary of the current rally, with sensex ending 50 points lower at 17,053 and the turnover taking a dip. However, a look back at the rally of the last one year show that sensex has more than doubled from its March 9, 2009 level of 8,160 and investors richer by over Rs 34.3 lakh crore with BSE’s market capitalization hitting Rs 60.7 lakh crore.

The extreme pessimism a year earlier made way for hope when Manmohan Singh swept to power, about two-and-half months after the early March low last year. For the first time ever, on May 18, 2009, markets were closed for the day after just two minutes of trading as sensex hit the second upper circuit to end with a gain of 2,100 points. Since Mukherjee’s budget in July 2009, sensex has gained 21.4%. In between it had also scaled a new year high of 17,790 on January 6 this year.

Stock      Market Price  One year Gain %    
Tata Motors 771  464%
Hindalco 162 328%
Tata Steel 613 303%
M&M 1123 254%
ICICI Bank 925 252%

Exhibit -2: Indian Industrial Production figures see huge growth against
last year. Reference

Industrial output (IIP) for the month of January grew 16.7% as against 1% in January 2009. While the manufacturing sector grew to 17.9% versus 1% on year-on-year basis, growth of the mining sector was recorded at 14.6% as against 0.7% in the corresponding month of 2009. The electricity sector too grew at 5.6% in January 2010 versus 1.8% a year ago.

While January basic goods rose 10.7% as against -0.7% in January 2009, what came in as a surprise was the growth in capital goods, which was up 56.2% versus 15.9% (YoY). Intermediate good for the month too were up 21.3% as against 3.6% in January 2009. January 2009 consumer goods index grew 4.2% versus 3.6% (YoY).

Consumer durable goods grew at 31.6% as against 2.1% in corresponding month last year. Link

Exhibit-3 : India offers better long-term returns on stocks than China

        SINGAPORE: India offers better long-term returns on stocks than China, given the outlook for economic growth and corporate earnings, according to Franklin Templeton Investments.
India’s economy may sustain faster expansion from a smaller base as “favorable” demographics boost consumption, said Stephen Dover, who oversees $25 billion as managing director and international chief investment officer for Franklin Templeton Investments’ Local Asset Management groups.
Price clearing and the exchange rate are “freer” in India, he said. “If we were to make one long-term bet, we would make it on India rather than China,” he told reporters in Singapore. “India is, in my opinion, still quite underinvested. Looking at India, India has the opportunity for some of that growth that China has had and the difference is that investors can participate in that growth.”

Exhibit-4: Mukesh Ambani, Lakshmi Mittal among world’s top ten billionaires:
Forbes Article Link

        WASHINGTON: Indians Mukesh Ambani and Lakshmi Mittal figured among world’s top ten billionaires as Mexican tycoon Carlo Slim Helu beatAmericans Bill Gates and Warren Buffett to become the wealthiest person onearth.

Besides fourth ranked Reliance Industries chairman Ambani
and fifth placed steel czar Mittal, four other Indians were among top 50 in 2010 Forbes list of the World’s Billionaires released Wednesday with as many 49 Indians joining company with the planet’s 1,011 richest people.

With his fortune swelling to an estimated $53.5 billion, up$18.5 billion in 12 months, Slim surged ahead of Microsoft cofounder Bill Gates, who had held the title of world’s richest 14 of the past 15 years, the US business magazine noted. Gates, now worth $53 billion, is ranked second in the world. He is up $13 billion from a year ago as shares ofMicrosoft rose 50 percent in 12 months. Buffett’s fortune jumped $10 billion to $47 billion on rising shares of Berkshire Hathaway. He ranks third.

Eleven countries have at least double the number of billionaires they had a year ago, including China, India, Turkey and South Korea.

Fourth placed Mukesh Ambani with a fortune of $29 billion has global ambitions, Forbes said. So has his younger brother Anil Ambani ranked 36 with a $13.7 billion fortune. Fifth ranked Lakshmi Mittal with a fortune of $28.7 billion is “looking to expand in his native India; wants to build steel mills in Jharkhad and Orissa but has not received government approval,” Forbes noted describing him as “London’s richest resident” who oversees ArcelorMittal, world’s largest steel maker.
Azim Premji with a fortune of $17.0 billion was ranked 28.Shashi & Ravi Ruia brothers took the 40th spot with a fortune of $13.0 billion.

Last among the Indians in top 50 was Savitri Jindal, ranked44th, with a fortune of $12.2 billion. She took over as head of OP Jindal Group after her husband died in a helicopter crash in 2005.

Among other Indians on the billionaires list were Kushal PalSingh (74), Kumar Birla (86), Sunil Mittal (87), Anil Agarwal (113), Adi Godrej & family (148), Shiv Nadar (201), N.R. Narayana Murthy & family (616), Rahul Bajaj (880) and Vijay Mallya (937).

Exhibit-5 : FII have invested over 10,000 Crores after the budget in few days.
Reference

Since the budget, FII have invested over 10,000 Crores in equity market and over 3,400 crores in Indian Debt Market.

Exhibit-6 : Size of Capital market of World Stock Exchanges

 

Other Items of Investors Interest:

1)    March-15 is advance tax payment date for Indian tax payers. Please
don’t miss the deadline.
Link: https://onlineservices.tin.nsdl.com/etaxnew/tdsnontds.jsp

2)    It is also US tax return season. http://www.taxact.com allows you to file US federal tax return free of charge. You may choose to do paper return or by e-file.

3)    I recommend US based r2iers to signup with EFTPS to enable paying tax returns directly from their US bank accounts. It will be really helpful, after your Return to India.

4)    This is also year 2010. Many US based investors were waiting to take advantage of this year. There are special provision for doing Roth conversion this year and split your taxes into two years. It is a great benefit. By doing Roth conversion, you avoid 10% penalty and by planning your withdrawal amount carefully you may avoid paying taxes too. What more you want? Give me a call if you need to avail my services.

5)    If any of you have missed my recent article in r2iclubforums.com

Check if you should continue to contribute to 401k or not.

401k/IRA – Is it really such a good idea for r2ier ?

 

Updates on various subjects discussed in Past newsletters.

1)    Fidelity Global Real Assets Funds. Those who applied for this funds should have been really happy now. Current NAV is 10.77. That gives 7.7% return in one month. That is a nice return. You are welcome for sending me the thank you note.

2)    L & T finance NCD – L&T has credited the demat account of all investors who applied for same. Pls check your demat account balance. It is not yet opened for trading. It may be available for trading as early as next week in NSE.

3)    IRFC bonds have come and gone in seconds.
Retail investors are deeply disappointed.

Happy Investing!

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