Goldman Sachs issued a report in 2003 predicting that India’s economy will be the world’s third largest by 2035. The report cited expected annual growth rates of 5.3% to 6.1%.Though it has been a bumpy ride as of late, India has the potential to fulfill these optimistic promises. Unfortunately, I’m about as confident in “potential” macroeconomic projections as I am in my own ability to read the future. After all, questions about economic reform, infrastructure, and education must be addressed first.
But if these projections are even close, the Indian stock market will show you the money.
China vs. India: showdown of the 21st century
The real question is: How much of these two looming giants should you have? Both are growing at accelerated rates, so it’s not a simple decision. You really need both — a good piece of China will pay off over the next few decades.
That said, I look to India to exploit an edge: its commitment to the democratic process. Yes, this may sound cliche. India’s government has long been criticized for extended periods of unremarkable reform. Yet I prefer it.
Advantage: India
Long term, India’s commitment to democracy and free markets are a massive benefit. The economies of Brazil, Taiwan, South Korea, and yes, even the United States can testify to that.
At its simplest, India is attempting to build a foundation of sustainable yet powerful growth. And it is doing it through a functional democratic process, which is accountable to its citizens.
Taking stock
When it comes down to companies, India has some specific areas of critical advantage. The IT outsourcing world has been hit before. But I think Satyam is still an intriguing investment opportunity that has been tremendously volatile as of late. The company is closing in on becoming the developing world’s first global consulting firm — similar to IBM‘s (NYSE: IBM) role in the tech consulting industry. In the financial world, our Global Gains team of analysts picked up on two Indian banks (ICICI was one) that have posted strong financial performance of late. The other, HDFC (NYSE: HDB), continues to be an intriguing investment in a country that is building wealth quickly.
Attacking its own content-hungry consumers, Rediff.com has created a strong online presence that is beginning to resemble Microsoft‘s (Nasdaq: MSFT) MSN site in its early years. Rediff is certainly not on the same scale of popularity or profitability yet; it may be getting there soon. If you are paying attention to SINA (Nasdaq: SINA) in China, you might want to look into Rediff.com as well.
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