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Eight months ago, I heard a surprisingly convincing speech about reasons to invest in the Indian economy.
Among the 25 speeches at the two-day Value Investing Congress in New York, Rahul Saraogi’s was the most compelling. As the manager of an investment firm based in India, Saraogi was one of the lesser-known names at a conference featuring presentations from the likes of Whitney Tilson, Donald Yacktman and the Winklevoss twins. But he built quite a case for investing in his native India.
Saraogi’s reasons for being bullish on India were:
- After years of getting beaten down, Indian stocks were cheap, trading at 10- to 12-year lows.
- The Indian economy is certain to grow. According to Saraogi, India’s economy is currently similar to where America’s was in the 1950s and ‘60s. Over the next 20 years, the Indian economy looms as the greatest growth opportunity aside from the U.S.
- India’s GDP will start to grow significantly in the next 12 to 36 months.
It’s only been eight months, but Saraogi is already looking quite prophetic.
The S&P BSE Sensex Index, India’s large-cap stock stock index, has jumped 10% since September and is currently trading near all-time highs. The International Monetary Fund expects India’s GDP growth to accelerate from 4.4% in 2013 to 5.4% this year and 6.4% in 2015.
Furthermore, inflation has pulled back to its lowest level in more than four years. And the rupee has strengthened from 68 to 60 against the dollar.
The mainstream U.S. media has taken notice. In the past week alone, Barron’s came out with a cover story for its print edition titled, “India: Open for Business,” and Forbes had an article on its website detailing “Why India Will Soon Outpace China.”
Where the Indian economy goes from here could depend on the outcome of this month’s prime minister election.
Narenda Modi, the beloved chief minister of the state of Gujarat for the past 12 years, is expected to gain election. If it happens, Modi’s installment as the new prime minister should be good for business. He improved Gujarat’s GDP three fold during his reign, and the state now produces 25% of India’s exports despite only comprising 5% of the country’s population.
Still, India’s economy has a long way to go. GDP growth below 5% is pretty putrid for an emerging market – especially when you consider that it’s being outpaced by an inflation rate of 8%. With GDP growth expected to rebound in the next two years and inflation in steady decline, however, India is on a promising track.
Suddenly, every mainstream media outlet is making the case to invest in Indian stocks.
I give credit to Rahul Saraogi for being ahead of the curve eight months ago…when very few people were talking about India. With every passing day, it appears he may have been onto something.
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