India is on my short list of places to visit. In the last two years, I’ve tried to schedule a trip on a number of occasions, but things always get in the way.
I’ll get there someday soon. But even before I set foot in the country, I can tell you one thing with certainty: India’s economy is absolutely roaring.
The country’s economy has expanded at an average rate of 8% over the last three years. Just in the quarter ended June 30, it charged ahead by 8.4%.
Naturally, personal incomes are also quickly rising in India. Salaries are expected to increase 7.3% this year, the biggest jump of any of the 70 countries that the International Monetary Fund monitors.
Because India’s economy is rapidly becoming a powerhouse, I think it’s important to understand the country’s background:
India’s Rich and
Diverse History
The Ancient Indus Valley civilization is one of the world’s oldest, dating back at least 3,500 years. European Aryan invaders from the northwest swept into the area in 1500 B.C., merging with the native Dravidians to create the Indian culture that endures today.
In the eighth century, Arabs arrived … then came the Turks in the twelfth century … and three hundred years later, more Europeans. Finally, in the nineteenth century, the British colonized the region. Their rule ended in 1947, as India split into a largely Hindu India and a mostly Muslim Pakistan.
Though more than 80% of modern India’s 1.1 billion people are Hindu, the country is also home to 126 million Muslims — one of the largest Islamic concentrations in the world.
India’s nearly 1.3 million square miles span dramatically from the world’s tallest mountains — the Himalayas — in the north to the low Ganges Plain, the country’s most populous area. The Indian sub-continent juts into the Indian Ocean, giving India 4,350 miles of coastline.
India’s five principal cities:
- New Delhi — the country’s capital
- Mumbai (formerly Bombay) — India’s largest city, premier port, and home to Bollywood, India’s film industry
- Calcutta — the second-largest city and eastern India’s chief commercial and financial center
- Chennai — one of India’s principal ports
- Bangalore — the country’s technology hub, home to the equivalent of our Bay Area’s Silicon Valley and New York’s “Silicon Alley†combined.
It’s primarily these cities that are helping India’s economy grow by leaps and bounds. Indeed,
India’s Economic Potential:
Second Only to China’s
Despite the huge economic strides India has made over the past several years, per-capita GDP is just $538, a little less than half of China’s $1,162.
More than one billion people in India still survive on less than $2 a day. Upwards of 350 million still subsist on less than $1 per day.
However, at the rate things are going, it’s likely that per-capita income in India will eventually reach $6,000 a year — almost six times the level in China. Already, the country is seeing the effects of economic growth:
- Manufacturing production, accounting for 27% of the economy, sped ahead at a 13.3% rate in July, up from the already-fast 9.9% in June. Production at factories, utilities and mines gained 12.4%!
- Based on the first five months of India’s fiscal year, automobile sales are zipping along at an astounding annual rate of 55%!
- Sales of televisions, mobile phones, refrigerators, air conditioning units and more are all smashing records, growing at rates of 20%, 30%, and higher.
- Indians are also starting to travel in record numbers, with Indian airline passenger numbers projected to more than triple over the next five years from 14 million to around 50 million.
All of this adds up to spectacular demand for natural resources and plenty of profit potential for investors.
Seven Promising
Investment
Areas in India …
India has some essential natural resources, but not enough to keep pace with rapidly escalating demand.
Here are seven investment areas that are going to really benefit from India’s economic emergence:
Coal dominates India’s energy supply, providing more than half of its power. Production is able to meet India’s coal demand for energy … for now.
But according to the International Energy Annual, India’s coal consumption will increase 20% to 430 million tons by 2010.
And here’s the clincher: Currently, nearly all of India’s 390 coal mines are inefficient and government-controlled. In my opinion, that will have to change if India wants to meet its coal needs.
Huge international mining companies will have to pitch in, and that will mean some great investment opportunities.
Oil provides about 30% of India’s total energy consumption. India holds an estimated 5.4 billion barrels of oil reserves, but its net oil imports run at more than 1.4 million barrels a day.
Plus, oil consumption in India is expected to rise sharply, to 2.8 million barrels a day by 2010, a 27% increase from 2003 levels.
The state-run petroleum industry wants to reduce its dependence on oil imports. But they’re going to have to work more closely with multinational oil companies to reduce red tape and to improve the low recovery rate in India’s oil fields (about 30%, well below the world average). Again, big investments and substantial money to be made.
Natural Gas opens up a very similar opportunity. Indian consumption of natural gas is zooming faster than the country’s production capacity.
Huge opportunities lie ahead for companies that will help India import and distribute natural gas, either via pipeline or as liquefied natural gas.
Copper production was, until the late 1990s, solely run by government enterprises. Production chronically trailed demand, forcing India to rely heavily on imported copper.
But six years ago, privatization of the copper industry began in earnest, and is expected to be complete in another 13 to 15 years.
Meanwhile, as in China, demand for housing is starting to go through the roof. China has been a major factor driving the price of copper from $.61 a pound in 2002 to nearly $4 a pound recently.
Add in India’s demand for copper, and over the next few years you could see copper soar to $6 or even $8 a pound.
Aluminum: Bauxite is the primary ore for the production of aluminum, and India has the world’s fifth-largest reserves with deposits estimated at three billion tons. That represents 5% of total world supply of bauxite and corresponds to 3% of world aluminum production.
But per-capita consumption of aluminum in India is very low — less than 1 kilogram per person, compared to 3 kgs in China … 10 kgs in Taiwan … 15 kgs in Japan … and at least 25 kilograms per person in the West.
Again, there’s tremendous room for growth, and lots of investment opportunities in this area.Â
Gold: Nobody can dispute the fact that India is the world’s largest gold market. The country is expected to consume at least 20 million ounces of gold this year.
I estimate that demand for gold — intricately related to the cultural and religious beliefs of India’s nearly 900 million Hindus — should surge by at least 7% a year for the next five years. Dozens of gold mining companies, refiners and more are lining up to fill the demand. Investors stand to reap the profits.
Water: — I recently devoted an entire issue of my Real Wealth Report to the subject of water, or “blue gold†as I call it. In fact, my subscribers have been profiting from this trend for more than two years.
India’s water crisis — lack of potable water, sanitation problems, agricultural water shortages and more — are leading to famines, widespread diarrhea, malaria, typhoid, cholera and more. There are few places in the world that wisely invested funds can do more to help.
So that will spell countless opportunities for companies to do good for the country’s population and do well for their investors.
There Will Be Lots
Of Money to Be Made
Like China, India is rapidly opening up to free market ideas. And it is quickly becoming one of the most exciting markets in the world.
My Real Wealth subscribers have already grabbed up to 38.65% gains in about eight months in a fund that specializes in helping India’s emerging economy.
Since those gains were grabbed, the share price of this fund has fallen back to lower levels, and I think it’s going to be a good buy again in the near future.
I’m also eyeing another Indian mutual fund that I may soon recommend in my Real Wealth Report.
If you’re not a subscriber, you might consider another mutual fund that I like — the Matthews India Fund (MINDX). It’s up about 10% so far this year.
One last thing: In case you didn’t see it, crude oil had its biggest one-day gain in six months yesterday. This is the kind of move I’ve been telling you to expect, and I think many more lie ahead!
Best wishes,
Larry
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