Investing in India
Mark this day down on your calendar: November 27, 2006. It is a day investors will look back to in 10 or 15 years and wish they would have realized its importance.
Unfortunately, most won’t until it is too late. But I don’t want you won’t fall into that trap. Let me explain…
For the first time since the British pulled out of India in 1947, the world’s largest democratic nation opened its virgin $300 billion retail sector up to a foreign mega-retailer. Namely: Wal-Mart.
Yesterday, Wal-Mart announced it formed an alliance with Bharti Enterprises Ltd. (a leading Indian telecommunications company) to open hundreds of stores in India over the next several years. According to an article on investor.com, “Under the deal, Wal-Mart and Bharti Enterprises will set up a joint venture to manage procurement, inventories and logistics, while stores will be set up under a franchise agreement, said Sunil Bharti Mittal, the chief executive of the Indian company.”
This is a massive story – although it didn’t make the headline of any mainstream news source that I saw. (It was buried under about 10 stories that came out that day). This sole event will lead to billions and billions in profits for investors (especially small-cap).
You see, until yesterday, 97% of India’s retail sector was made up of Indian mom and pop storeowners like the ones in this picture:
For the last 49 years, the Wal-Marts, Targets and Sam’s Clubs of the world were not granted access to India’s blossoming consumer class. The country’s leftist leaders wanted to protect the millions of small-time shopkeepers that dominate the retail sector. After all, the politicians need votes come election time. And this has been the major item on the Communist ticket for years now.
Screw the Communists!
To be a true super power you cannot close yourself off competition – whether foreign or domestic. By doing so you sacrifice your own people’s long-term prosperity for short-term mediocrity. By allowing major retail outfits like Wal-Mart into India you encourage billions of dollars to be spent on access roads, parking lots, water purification, infrastructure development, banking development, insurance writing and real-estate development. And on top of that, you encourage billions in foreign direct investment — money India can use to improve its living standard.
As a guy who has been to India twice in the last three years (and seen the problems with my own eyes), believe me: India has a lot of room for improvement. If you doubt that, here is a picture of an Indian slum my buddies Karim, Greg and I took this past February:
Of course, there will be some negatives that follow Wal-Mart and other massive retail outfits into India. Thousands of mom and pop shop owners will go out of business – just like they have here in the United State when Wal-Mart set up shop. Politicians (who are on the hook come election time) will scream bloody murder – just like they do here in the United States. And thousands of folks without a job will tell Wal-Mart and its supporters that they are the devil incarnate – just like they do here in the United States.
BOO-HOO. Get over it. All great economic nations are founded on a principle of competition – both domestic and from abroad. That’s how progress is made. That’s how improvements are encouraged. And that’s how ingenuity is promoted.
It’s also how investors make a lot of money.
The last time a major Asian country opened its retail sector to foreign direct investment was China. In 1992, it opened its then $75 billion cash cow to foreign investment for the first time ever. And what followed in China was a wildly lucrative series of events…
- The Hang Seng Stock Exchange rose as much as 314%
- The Shanghai Stock Exchange’s market value soared 44 times over
- And the Chinese retail market grew from $75 billion to $480 billion. That’s a 15.3% annual growth rate for 13 years.
Looking forward, there are going to be a lot of investment ideas that pop up in India. Many of them will be small-cap in nature. But it is going to take time to find the really good ones.
Right now, I am working with Kif Hancock – editor of The Bull Hunter — to find an Indian play that will directly benefit from India’s emerging retail sector. Kif is still in the due diligence stages right now. But as soon as he has something figured out, I’ll let you know.
For now, please know this…
India’s retail market is not headline news at this time. No one is talking about it. No one is thinking about how to make money when it opens up. But it will open up (it is just starting to now). And investors who follow this story early on could make a mint . As investor.com reported yesterday…
“India’s retail industry is estimated at about $300 billion, and is forecast to grow to $427 billion in 2010 and $637 billion in 2015, according to consultancy Technopak Advisors.”
If you are interested in getting some of the billions in profits, stay tuned to this space. We here at the Sleuth will fill you in – early on in the game.
November 28, 2006
P.S.: The last time we reported on India our winning plays quickly shot through projected profit targets and yielded a combined average gain of 70%.
P.P.S.: Let me know what you think about India opening up its retail sector. Do you care? Do you have an opinion about anything I said in this Sleuth? Give us your two-cents. If you have something good to say, I’ll publish it in an upcoming article.
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