Due to great demographics, we believe that India has potential for stellar growth. Roughly 1.2 billion people live in the country. Over 50% are younger than 25 and over 65% are below the age of 35.
This is the opposite of Japan, where an aging population continues to contribute to deflationary pressures. In the U.S., we have our own concerns with the aging baby boomers, entitlement programs and deflation.
Indians are by nature an enterprising people. Indian voters, about 550 million strong, voted to elect Narendra Modi as their prime minister. This is an individual that campaigned on a modern platform of enterprise. So the Indians in record numbers tossed out the Congress party, which had been in charge since 1947. That party had long been criticized of hindering growth for most of the years since 1947. With the changing of the guard, Indians have voted for a new path!
Other positives:
From the Indian perspective, the decline in commodity prices is good news. India imports almost 80% of its oil! It stands to benefit from lower prices as its import bill falls and, with it, its trade deficit.
Fiscal deficit, current account deficit and inflation are all showing clear down trends.
Consequently, India will be among the very few countries in the world, and perhaps the only one in the large emerging markets, to have shown improvement in growth and earnings in 2014.
India currently trades for 15x earnings. That’s not expensive when considering its growth potential. India is projected to show earnings growth near +19% in 2015.
India has one of the lowest valuations relative to its growth in the emerging markets. In fact, it is the third smallest among 13 emerging markets. With both its price-earnings multiple and growth in 2014 in the mid-teens, its PEG (price-earnings to growth) ratio of 1 is higher than only Taiwan (0.9) and Korea (0.7).
The risk to this investment thesis:
After India’s Parliament closed its winter session without passing key reform bills, Prime Minister Narendra Modi issued rarely used executive decrees to push through parts of his legislative package. While the mass media cheered, investors must realize that Indian shares could offer a bumpy ride if Modi’s agenda gets stretched out or substantially altered, especially in light of global markets’ recent risk aversion.
If politics don’t get in the way, then India should be one of the world's great growth stories over the next 5-10 years.
WisdomTree India ETF (EPI) on a 3-year, weekly chart time frame:
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