You've heard the hype: India is growing ... fast. But which investors are really putting their money where their mouth is? More importantly, where is that money going?
Mark Hillman, Kenneth Fisher, and David Tepper are just some of the legendary names getting a piece of the action. Need proof? Peer into Hillman's investment into Tata Motors, and Fisher's into ICICI Bank (NYSE: IBN).
While my own perspective may be biased (I've spent a great deal of time in India, and I like its prospects), you can't ignore the millions these gurus have invested.
The dawn of an economic empire
Goldman Sachs issued a report in 2003 predicting that India's economy will be the world's third-largest by 2035. The report cited expected annual growth rates of 5.3% to 6.1%.
Are you kidding me? 6.1%? Since 1996, the nation has averaged more than 7%. Currently, India is pumping out near-double-digit GDP growth.
Though it may be a bumpy ride, India has the potential to fulfill these optimistic promises. Unfortunately, I'm about as confident in "potential" macroeconomic projections as I am in my own ability to read the future. After all, questions about economic reform, infrastructure, and education must be addressed first.
But if these projections are even close, the Indian stock market will show you the money.
China vs. India: Showdown of the 21st century
How much of these two looming giants should you have? Both are growing at accelerated rates, so it's not a simple decision. You really need both -- a good piece of China will pay off over the next few decades.
That said, I look to India to exploit an edge: its commitment to the democratic process. Yes, this may sound cliche, and India's government has long been criticized for extended periods of unremarkable reform. Yet I prefer it.
Eager to highlight China's swift ability to prioritize resources -- often at the expense of its own citizens -- most experts give China the advantage. If the government needed to blow through a few neighborhoods to make room for the Guangshen Railway (NYSE: GSH) company -- poof! It'd be done.
If even our own local governments could operate with that kind of unencumbered authority, we'd have fewer potholes, failing public schools, and congested roadways. If more and more of our parks and forests were made available to energy companies like Peabody Energy (NYSE: BTU), our coal reserves would swell massively. But this is simply not how our government works-and I like it that way.
Advantage: India
Long-term, India's commitment to democracy and free markets is a massive benefit. The economies of Brazil, Taiwan, South Korea, and yes, even the United States can testify to that.
At its simplest, India is attempting to build a foundation of sustainable yet powerful growth. And it's doing it through a functional democratic process, with a government accountable to its citizens.
Taking stock
When it comes down to companies, India has some specific areas of critical advantage. The IT outsourcing world has been hit before, but I think Satyam remains an intriguing investment opportunity, despite its tremendous volatility lately. The company is closing in on becoming the developing world's first global consulting firm -- similar to IBM's (NYSE: IBM) role in the tech-consulting industry.
Elsewhere, in the financial world, our Global Gains team of analysts picked up on two banks that have been strong recent performers. ICICI was one, while the other, HDFC Bank (NYSE: HDB), remains an intriguing investment in a country that is building wealth quickly.
Attacking its own content-hungry consumers, Rediff.com has created a strong online presence that's beginning to resemble Microsoft's MSN site in its early years. Rediff certainly does not have the same amount of site traffic or popularity yet, but pay attention -- it may be getting there soon. If you're tracking Sina (Nasdaq: SINA) in China, you might want to look into Rediff.com as well.
Investing legends have picked up on India's potential. So should you. If you'd like to do just that, the Motley Fool Global Gains team is here with precise advice. You can try the service free for 30 days.
This article was first published Sept. 28, 2007. It has been updated.
Fool analyst Nick Kapur owns no shares of any stock mentioned in this article, though he is invested in India. Satyam and Sina are Stock Advisor recommendations. HDFC Bank and Tata Motors are Global Gains selections. Microsoft is an Inside Value pick. The Fool has a disclosure policy.
