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Investing in India: Buy Reliance Communications (RCLMY:OTC)

Posted May 13, 2008

by Laura Cadden

Baltimore — (TFN): After three years of ever-increasing expansion, India’s gross domestic product growth is expected to slow this year, perhaps as low as eight percent—down from 9.6 percent a year ago. J.P. Morgan expects it to decelerate even further, to 7.5 percent in 2009. Yet financial experts consider India, like China, Brazil and Russia, to be one of the economic superpowers that will shape global economic realities in the years ahead.

Laura Cadden smart tradingMy guest today is Christian DeHaemer, editor of Material Profits and Crisis Trader. Lower-margin sectors like textiles have been hurt by the rupee appreciation. How do you expect the economic turndown in the U.S. to impact Indian stocks this year?

Christian DeHaemer: To look at the big picture, the Sensex is down about 30 to 35 percent since January. It was already impacted, along with China and U.S. stocks. We’ve already seen it happen. This is a dip. Going forward, the rupee is actually down just a little bit as the dollar has climbed back up as the Fed has switched switched from easing rates to talking about tightening rates. I think going forward, India is a great buy. There’s a lot of specific companies, maybe not in textiles, but specific more up-scale stocks you want to own…

***Click here to view the video!

Laura Cadden: … things that would appeal to the emerging middle class in India. I know increasing demand has been credited with raising global food prices. What other sectors will benefit from the middle class expansion in India?

Christian DeHaemer: You have what I’d call a prosperity bubble going on in India, which we’ve seen happen in Japan 30-40 years ago, we’ve seen happen in China—the phase when the citizens come out of subsidence farming or poverty, where they’re just thinking about their food, up to the phase when they’re able to buy toasters or refrigerators and everything else. So the country starts adding infrastructure for cars, for electricity. The new emerging middle class then buys all these things that are so common here in the West.

Laura Cadden: Is there a specific company you’ve identified that you think will benefit?

Christian DeHaemer: One of the first things that people buy is a phone, obviously to be able to talk to their business or relatives. I found a company, Reliance Communications (RCLMY:OTC), that’s the second largest phone company in India.

And Reliance is growing like a weed. The whole cell phone industry in India is adding ten million new cell phone plans a month. That’s an incredible amount of growth.

Reliance is right there. There’s many, many cell phone companies in India, but they’re the second largest. They’re growing 46 percent a quarter. Last quarter 4.5 million of those cell phones were Reliance cell phones.

Their subscriber base is up to 45 million. But there’s also tremendous room to grow because the cell phone and fixed line penetration rates in India is only 300 million and as you know there’s 1.2 billion people in India.

Growing at ten million a month, it’s just growing incredibly fast but they have another 600 million people to add to cell phones. So we’re going to ride this pony for another couple years anyway.

Laura Cadden: So when you have all these people going up to the middle class, the GDP has averaged, what, 8.7 percent over the past four years?

Christian DeHaemer: Yes, that is correct.

Laura Cadden: With all these stocks that are going up, it’s very difficult though for U.S. investors to buy stocks in India. I mean the Bombay Exchange is almost entirely closed to foreigners. How would you recommend people go about it?

Christian DeHaemer: Well there’s a handful of stocks that trade in New York. They’re called ADR’s, or American Depository Receipts, where you take a certain amount of shares and you deposit them in the Bank of New York or some other large bank. Then they trade on the New York Stock Exchange.

It’s just as easy to buy one of these stocks as it is to buy GE or Exxon/Mobile or anything here in the states.

Laura Cadden: Are you concerned about the inflation that they’ve been talking about for both India and China?

Christian DeHaemer: Inflation’s always a concern. There’s a concern of inflation in the United States, but in India this year it’s looking to be around seven percent, which isn’t bad on a historical basis. It’s been as high as 16, 20 percent. So it’s actually trending down.

Laura Cadden: Well thank you so much for the information. To learn more about Chris’ investment research service, Material Profits, go to www.materialprofits.com.

For Chris DeHaemer and TodaysFinancialNews.com, I’m Laura Cadden.

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