Snapping Up Stocks in India

 | Apr 02, 2014 | 6:00 PM EDT  | Comments
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Stock quotes in this article:

EPI

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inxx

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indy

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indl

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indl

Beginning on April 7 and ending on May 3, national elections will be held in India. Investors, both domestic and foreign, have been buying equities there in anticipation of a shift in the leadership of the country to the Bharatiya Janata Party (BJP) and its head Narendra Modi.

I wrote about the importance of this election for investors last December in the column India Becoming Dangerous for Investors. Although the two main indices, the S&P SENSEX and the Nifty lost 3% and 2%, from when that column was published and mid-February, they have since gained 12% and 13%, respectively, as investors have become increasingly convinced of a BJP and Modi win and the expected favorable treatment that will be accorded investors there.

The diplomatic issues between the U.S. and India I wrote about in December, although still ongoing, are largely now considered to be government concerns that will have no impact on investors.

As strong as the Indian equity performance has been in the past five years it is most probably going to perform even better over the next few years as the foreign capital that investors have been waiting to put into India begins to arrive.

The easiest way for U.S. investors to participate is through the Exchange Traded Funds in the U.S., which are all up on the day. I will list a few here and then some others in the comments section below this column.

The largest ETF is the Wisdom Tree India Earnings (EPI). Although it has risen 23% in the past two months, from $15.73 to $19.33, it is still trading 33% below its November 2010 high of $28.69.

One of best performing sectors in India is expected to be infrastructure. India is in desperate need of physical infrastructure expansion and upgrading. The EGShares India Infrastructure (INXX) is a good way to invest in the sector. Recently trading at $11.53, INXX is 27% above its Feb. 3 price of $9.07. But it's still almost half of its October 2010 high of $23.18. It also has a current yield of 13.67% and PE of 13. 

The iShares India 50 (INDY) invests in the 50 largest companies in India that make up the Nifty Index. It has moved up about 22% in the past two months, to $26.14 from $21.50. However, it is also about 21% below its November 2010 high of $33.10. This is probably the safest way for U.S. investors to participate in Indian growth.

For investors interested in a leveraged growth play the Direxion Daily India Bull 3X Shares (INDL) is a good bet. It also invests in about 50 large companies across both of the main Indian Indices. This leverage has helped to rocket the issue up 56% in the past few months, from $42.30 to $66.01. However, it is still trading at less than a third of its Nov. 1, 2010 high of $224.12.

I expect the recent performance of all of these issues to continue positively as the Indian elections build toward the May 31 conclusion and the expected transfer of power to the BJP and Narendra Modi. If the election outcome is not what is widely anticipated now though, and the currently ruling Indian National Congress retains power, these issues will all reverse.

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