Now Boarding - The India Money Making Train

Steam train — Stock Photo, Image

Image Source: Depositphotos
 

China has hogged the headlines for several decades with India rarely considered by the majority of investors. Times are changing and I wrote about happenings in China recently in Making Money In The Roaring Twenties In Asia. 

As far as India is concerned many investors still believe in the wording at the Agra station in India telling travellers that...
 

The time indicated on the time table is not the time at which the train will leave; it is the time before which the train will definitely not leave. 

The train has now left but it is not too late to jump on board before it really picks up speed. There are many reasons why investors should. 

Beyond geopolitical tensions, wage differentials between Asian manufacturing hubs will become an increasing point of focus. At the end of 2022, manufacturing hourly wages in mainland China stood approximately 80% higher than those in India, and nearly double those of Vietnam, with the gap set to widen by the decade's end. Consequently, incremental Western FDI will flow to these destinations as a means of supplier diversification.

US investment across South Asia soared in 2022 amid a general push by US firms to diversify supply chains, with the three primary beneficiaries being India, the Philippines, and Vietnam.

In each of these locations, US inbound investment during 2022 was concentrated in manufacturing, and in the case of India, a heavy focus on information services. I believe the trend continued in 2023 as US companies moved away from China. China's foreign direct investment slumped to its lowest level since 1993 last year, in the face of its slower economic growth and higher interest rates elsewhere.

In November 2023, the market capitalization of the National Stock Exchange of India replaced the Hong Kong Stock Exchange to become the world’s seventh-largest equity market. It neared $4tn, almost doubling in value since the start of 2020. The Nifty 50 index — a weighted average of the largest listed Indian companies — reached a record high this week too.  Both institutional and retail investors have ploughed cash into its companies. While domestic investors have been the driving force, 2023 foreign equity inflows are estimated at $14 billion. 

The economic case for India is certainly compelling. Early in 2023, it overtook China to become the world’s most populous country. By the early 2030s, it could also have one of the largest working-age and middle-class populations. That will support its continued urbanization and industrialization, and drive strong consumption and investment. It has already been the world’s fastest-growing major economy in the past two years. Capital Economics expects this to continue, projecting annual growth will top 6 percent in both 2024 and 2025.

In earlier years China leaped past Japan, Germany, and Britain to take the number two slot behind the US.  It would not surprise me if India overtakes Germany and maybe Japan too because...
 

India 

is now the fifth largest economy in the world having ousted its former emperor - "Great" Britain - from that position in 2023 and - at the present rate of growth progress - it could leapfrog over the Sick Man of Europe (Germany) and Tired Man of Asia  (Japan) to become number three by 2030. 

India is now the fastest growing Asian economy and determined not to be dominated by China with elections due later this year India's Narendra Modi’s government has promised to increase spending on railways, airports, and other infrastructure to a record level and touted its economic achievements as it unveiled its final interim budget. Such investments drove China's growth, as it did that of the West starting in the 19th century. 

Some specifics include huge investments in the entire internal rail system reported in this article in the India Times. Even more important could be building the railway from India via Saudi Arabia, the United Arab Emirates, Jordan, and Israel to the European Union. That will cut journey times by up to 40% compared with existing sea routes and even more if the war problems that have closed the Red Sea route to Europe are not resolved. Israel could also be bypassed if those problems continue.  Freight costs will come down also. That rail bridge to Europe was strongly endorsed by President Biden when announced at the G20 summit held in Delhi in September 2023. More information is in this article in the Hindustan Times. 

Finance minister Nirmala Sitharaman said in her budget address that New Delhi would spend Rs11.11tn ($134bn) in the coming fiscal year, an increase of about 11 percent, which she said would “have a large multiplier impact on growth and investment”. Unlike in many countries the higher allocation for capital expenditure has been balanced by cutting costs in other less productive things. India's former emperor - "Great" Britain - cuts capital expenditure instead and borrows even more money for those other things!

Many foreign investors fleeing China's tumbling stock market drove up India's benchmark Sensex index by 20% in the past 12 months and the IPO market surged - Dealogic data shows 21 IPOs raised around $678 million in January this year compared with $17million last January. 

That leaves the question of where to invest. I have not yet directly invested there but I like Godrej Properties as the rapidly growing, increasingly wealthy young population needs housing. That is part of a giant conglomerate of the same basic name Godrej. I normally do not invest in conglomerates but many do and India has several giant ones operating globally. They include Tata Motors, Reliance Industries, Aditya Birla Group, Mahindra Group, and Larsen & Toubro. 

Strong demand for Tata owned "British" Jaguar and Land Rover - Tata’s most profitable models - has meant Tata's share price has more than doubled over the past year, far outpacing the Indian market; quite an achievement for a company with a market value of more than $40bn. I own one of their LR Discovery Sport models and it is super.  

Those companies have diversified portfolios that span multiple industries such as telecommunications, oil and gas, steel making, retail, and financial services. Some are even part of the government! In modern India, capitalism is not only an economic but a political system too — major companies such as Reliance and TATA not only have major control over economic policies but also of the political parties they fund, ruling the opposition.

For investors who prefer others to do the stock picking Hornbill Capital Advisors could be a good place to go. They claim the following performance...

8+ Years Track Record:

  Apr 2015 launched

1-Year Return:

 +62.2%   (vs. Nifty Index, +19.4%)

3-Year Return:

 +103.9%  (vs. Nifty Index, +36.5%)

5-Year Return:

 +294.3%  (vs. Nifty Index, +67.3%)

Total Return, Since Inception:

 +288.4%  (vs. Nifty Index, +91.7%)

          Annualized Net Return:

 +16.8%   (vs. Nifty Index, +7.7%)
   

That fund has also started 2023 well.  


 
                           
HORNBILL ORCHID INDIA FUND (HOIF)
Ending January 31, 2024  (In USD, net returns) estimates
          MTD:    +2.3%
          YTD:    +2.3%
 

China has grown mainly via manufacturing and India has shown real strengths in tech sectors. Examples of that can be seen in a number of the top US companies with CEOs of Indian origin...

Sanjay Mehrotra is the CEO of Micron Technology; Shantanu Narayen is the CEO of Adobe; Satya Nadella is Chairman and CEO of Microsoft; Sunder Pichai is the CEO of Alphabet and Google; Jay Chaudhry is the CEO of Zscaler which is a cloud security company; Arvind Krishna is the CEO of IBM; Neal Mohan is the CEO of YouTube; and George Kurian is the CEO of NetApp, among the top tech giants.  See more here.  

Perhaps because of that Tower Semiconductor (TSEM) proposes to build a chip fabrication plant in India worth $8B. 

India is not short of manufacturing leaders either and one - AcelorMittal - is the world's second largest steel producer.  Number one today is a Chinese company.

India is also among the world leaders in Our Futures Fuel - Hydrogen. That link is to an article of my own. A lot more can be found on the website of the India Hydrogen Alliance. 

Since I am a stock picker and not a fund investor I would like to find niche Indian companies in IT and hydrogen to invest in, also non-conglomerate infrastructure builders. If any reader knows names please share them in the comments below
 

So far, my investments in India are via non Indian companies 

For healthcare and industrial gases and the move into hydrogen in India, I have the French company Air Liquide ( AI:PAR) on the Paris exchange. I do not know if it has a US listing.  Its presence in India started in 1992. Today, Air Liquide has steadily increased its footprint in the country, with 800 employees to serving 1,000 industrial and 2,500 hospital customers. Given the vast amount of pollution India creates hydrogen is urgently needed to help clean that up - Alstom's (see below) product range includes hydrogen powered trains - and Air Liquide's medical gases will help with the many health problems caused by pollution. The company has proved a good investment for me and is up around 20% in the past 12 months.

India also has a large agriculture sector much of which needs modernising. John Deere (DE) could plough up some investor money in that sector. John Deere is India's largest manufacturing company for tractors, combine harvesters, implements, and other agricultural equipment.  I sold out of DE recently as a big problem for it today is farmer protests about low produce prices in India and over that in Europe plus EU regulations. I may buy in again when the dust settles.  

I have Caterpillar (CAT) to make gains from those enormous infrastructure investments in India. Caterpillar began manufacturing products in India 50 years ago in Tiruvallur, and currently has facilities all around the country. 

Given the huge investments in rail an obvious winner will be French train maker Alstom  (AOMFF) in the US or AI:PAR on the Paris exchange where I own it. That linked website tells us that Alstom has been associated with India’s progress for over 100 years and "as the leading multinational sustainable mobility provider in India, Alstom offers a comprehensive portfolio of offerings to meet customer specific needs, from cost-efficient mass-market platforms to high-end technological innovations. Synonymous with the country’s ‘Rail Revolution’, Alstom continues to be a strategic partner in supporting India’s freight revolution and passenger movement. With six industrial sites and two major engineering centers, the company not only caters to domestic project needs but also delivers for many international projects. Supporting the government’s modernization initiatives, Alstom has been at the forefront of introducing several breakthrough technologies in India with world class rolling stock, rail equipment and infrastructure, signaling and services. Fully aligned with the country’s vision of Make-in-India and Atmanirbhar Bharat, Alstom remains deeply committed to strengthening its local sourcing and supply chain ecosystem." 

I would urge some caution about investing because Alstom acquired the train making part of the troubled Canadian company Bombardier three years ago and found many skeletons in the closet soon after driving the share price down to all time lows where it languishes near today. That acquisition lifted Alstom to being the 2nd largest train maker in the world - the largest being a Chinese state-controlled company - thus giving it huge potential from the new industrial age that will rely on rail again as was the case with the first industrial age.

I shall stay with it because - first built over 160 years ago - India has one of the oldest rail networks on the planet and much needs to be modernized and expanded. Today India's rail network is used to move over a billion tonnes of freight, and more than eight billion passengers, across the world’s most populous country per year. India's first high speed railway is now under construction and if they build as fast as the Chinese did they will have a high speed network covering the whole country within a couple of decades. 

The first line is being partly financed by Japan which means its high speed trains will have priority but there will be opportunities for Alstom's high speed trains too given the government's Make in India policy. 

On January 1, 2021, Alstom's share price was Euros 46. It started to slump soon after completion of the Bombardier train division acquisition and the problems that came to light soon after have left the price at Euro 11 today. One would expect that the company is now on top of those problems and with its order book and prospects in many parts of the world including the US where it is one of the largest train builders and the first to build a high speed train there. If I am right the share price could double in the next 12 months and, being on board already, I shall enjoy the ride. 

As a last word, I think it is also worth mentioning that India and most other countries could also benefit from the Return of the  Roaring Twenties in the US  with my points in that linked article being reinforced by that latest job figures upwards blast. The U.S. economy added 355K to nonfarm payrolls in January, swamping the +170K expected. What's more, the U.S. Department of Labor increased its calculation for December job gains to 333K prior from +216K. 

The time to board is now before those high speed trains make it difficult to board once on the move, unlike the old steam train in the photo at the start of this article.

I wish all those that do board the India money making train an enjoyable and profitable journey!  


More By This Author:

Making Returns In The Roaring Twenties In Asia
Making Returns In The Return Of The Roaring Twenties
Paris - Europe's New Capital And A City Of Light For Investors

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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