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Emerging Markets: Top India Investments 2008

Posted December 17, 2007

Karim Rahemtulla reveals Indian stocks with the best potential gains in 2008. 

Baltimore – (TFN): The following is taken from a transcript for the TFN Smart Trading Action Alert program Top India Investments 2008 filmed December 13, 2007.

Laura Cadden:
Welcome to TFN’s Smart Trading Action Alert.  I’m Laura Cadden. 

This fall, India’s stock market numbers highlighted the country’s newfound roll as one of the world’s emerging economic superpowers. India now receives more foreign investment in one month than it did in an entire year just a decade ago. But the rise in the Bombay Stock Index was by no means smooth. Recent bouts of volatility indicate India investors fear the current bull market is really an investment bubble that could soon burst. 

And the Bombay SENSEX remains an especially difficult market for Western investors. The Indian government is attempting to restrict foreign investment in the country’s two main exchanges. And only a handful of stocks are available to retail investors as depository receipts on the Western stock markets.

My guest today is Karim Rahemtulla of The Xcelerated Profits Report. He will provide us with a firsthand assessment of India’s investment opportunities and some of the pitfalls awaiting investors. Welcome to the show, Karim.

Karim Rahemtulla:
Thank you very much, Laura. 

Laura Cadden:
So you’ve just returned from a trip to Mumbai. What is the most significant change you’ve noticed?

Karim Rahemtulla:
Well, Mumbai and a lot of other places in India as well. But the most significant change from the last trip when I was there was the amount of economic activity that’s going on in the country and in the city itself. It’s always been a very busy place, but now it’s even busier.

To give you an example, it took an hour and 15 minutes to get from the airport to the hotel 15 miles away. So that’s a lot of traffic.

Laura Cadden:
That’s like D.C. kind of traffic.

Not enough time to read the full transcript?  Watch the financial video instead.

Karim Rahemtulla:
D.C. kind of traffic, but the difference is here you’re competing with a bus, a horse-drawn carriage, maybe an elephant, a couple of tuk-tuks and three cabbies on a two-lane road.

Laura Cadden:
What do you consider the biggest threat to the continued economic growth of India right now?

Karim Rahemtulla:
One of the biggest threats they have over there is being able to manage the growth. And it’s almost out of control. The Mumbai traffic is a great example because you have no infrastructure that can handle the growth, so everything gets choked. There’s a choke point for everything, and if you can’t manage the growth, you’re going to get into a position where you all of the sudden create a situation where people are trying to grow their business. They get frustrated, and they start to look at other opportunities in other places because they can’t get things done in India.

Laura Cadden:
I know the Indian government is taking a very active and centralist role in the economy.  How is this impacting the stock market?

Karim Rahemtulla:
Well, it’s not really helping the stock market much. The stock market tends to do its own thing because the India government is very famous for doing the wrong thing at the wrong time, and they’ve always been famous for that. And in fact, the less the Indian government has to do with the market, the better it is. Whenever they try to introduce things like currency controls or the amount of foreign investment, indirect or direct, the market reacts negatively because it’s almost, like, “Please don’t do anything. Let the market do what it’s going to do, and it’ll correct by itself or go off by itself.”

Laura Cadden:
So India is still growing almost as fast as China. Do you think that in five years they might be competing over manufacturing contracts?

Karim Rahemtulla:
India will never compete directly with China on manufacturing because India does not have a manufacturing base. What India has is more of a knowledge-based economy, and that’s only for a portion of the population. China is basically the world’s factory. They have a ton of labor. They can produce things at a very low cost, and the government in China is very pro-manufacturing. They really couldn’t care less about what happens to the environment as long as they fill their coffers full of dollars. So India will compete in a different sector, not manufacturing.

Laura Cadden:
What sectors do you think will experience the most growth in 2008?

Karim Rahemtulla:
Well, the fastest-growing sector right now is definitely infrastructure and that’s because they don’t have any. There’s probably more paved road in the state of Texas than there is in the entire country of India. So that’s the fastest growing sector, but yet, it is not the sector that you want to look at in terms of profiting. That sector is going to be technology. 

And if you look at the Indian stock market, there is a disconnect going on. In the entire market, you’ve got 7,000 companies. Of those 7,000 companies, only 300 of them trade more than $1 million a day, so it’s a very narrow rally. And if then if you look at the most traded companies, of those, the companies in the software sector are the ones that are actually trading at 40 or 50 percent discount to the market. They’ve actually corrected while the market’s going higher.

So if you’re going to look at the Indian market, you want to look at companies like Infosys or Satyam Infoway. These are the two companies whose campuses I visited. And they’re really the companies you want to focus on now because they’re the fastest-growing companies with the most potential, yet they’re trading at a discount to the overall market.

Laura Cadden:
And these are companies that we in the U.S. could invest in.

Karim Rahemtulla:
They trade as ADRs in the U.S., yes.  Infosys trades under the symbol INFY, and Satyam is SAY.

Laura Cadden:
Thanks for sharing this with us.

Karim Rahemtulla:
Thanks for having me.

To learn more about Karim’s information service The Xcelerated Profits Report, go to http://www.mtvernonresearch.com/. 


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