It’s been ten years since my travels last took me to the Subcontinent.
I have a visceral memory of an argument with a cab driver in the brown smog on a hot street in Bangalore. I had just paid him to take me to the Palace of Mysore.
“Can you take me there?” I asked. In return, I got a strange ear-to-shoulder head bobble that looked like a “no” to me.
“I just gave you $20.”
Another head bobble.
“Then give me my money back and I’ll find another guy.”
Head bobble.
Just as I was about to strangle the guy, my travel companion told me the skull shake was a sign meaning “no problem,” or “no,” or “I don’t want to say no,” as well as about fifteen other things.
That’s when I first started to get along…
I do know one thing: The Indian head wobble has magical properties. Once you get it down, it will disburse hordes of beggars and allow you to walk unmolested.
Practice it before you go.
Do the Needful
Not to brag, but after that last India trip, my readers made 300% gains off Tata Motors (TTM) among other profits from India growth stocks like Dr. Ready.
It is now time to put India back on the menu. And I’ll tell you why: Today’s dominant market theme is debt.
The United States is swamped in debt and has yet to face the austerity budgets of Europe. But it’s coming.
The Tea Party has put balanced budgets back on the map. Voters are coming to the conclusion that you can’t spend your way out of a dept problem, despite the neo-Keynesian protests to the contrary.
Europe is mired in similar but more robust problems, and more liquidity won’t solve them. The PIIGS require yet another bailout, and the German tax payers are enraged at spending their money to bail out the corrupt Greek welfare state.
The European and U.S. problems will go on for years, draining growth from the world.
And don’t look to China for help. China’s inflation is accelerating at the fastest pace in three years. It hit 6.5% in July.
Bloomberg reports: “Elevated inflation shows that China is still dealing with the after-effects of an unprecedented monetary expansion during the last global slump and may have limited room for more stimulus.”
For those who point to China’s $3 trillion in foreign currency holdings, I would point out that the U.S. in 1929 — and Japan in 1990 — had the world’s largest foreign currency holdings at the time.
It is not a salve for market destruction, but rather a precursor.
Where to Put Your Money Now
Searching for low debt, undervalued currency, and a strong domestic market… there are several ways to look at a country’s balance sheet.
One is by debt to GDP compared to what percentage of the world economy the country makes up. This search returns nations like Brazil, Indonesia, India, Pakistan, Turkey, Mexico, and Argentina.
India seems like the real winner in this game, because not only does it create 8.6% of global GDP, but it also has less than 2% of total external debt.
This means that India won’t need a bailout by anyone.
India wins in the total debt department as well. Its total debt including household, government, banks, and business is 129% of GDP. (Japan’s total debt is 471%, the UK’s is 466%, and the U.S. is at 296% — and rising.)*
The second way to value a country is by purchasing power.
Big Mac Attack
Here is the latest Big Mac Index put out by The Economist.
For those who don’t know, the Big Max index lists the price of the McDonald’s burger in dollar terms in various countries. The idea is that lettuce, wages, energy costs, price of doing business, etc. are all tied up in the price of the hamburger.
It’s simply a great tool for understanding the value of a currency.
This means you get a 53% gain by trading your U.S. dollars for Indian rupees.
If you believe every market has a tendency to revert to the mean, the logic is simple: The dollar will fall and the rupee will gain. Assets priced in rupee will go up.
Exports on Fire
A low currency explains why Indian exports were up 46% in the second quarter. This growth is occurring when overall trade to the United States and Europe is dropping as a percentage of GDP. India is more than making up the difference with trade to Asia.
India is expected to grow at 8.1% in 2011. The global growth rate is running at 3.1% and the U.S. is expected to return 2.3%, though I’m sure this will be downgraded in retrospect.
Another positive for India is that the majority of its GDP growth is domestic. India’s consumer confidence is running around 75% and has been climbing in five of the last six quarters. In the U.S., that number is 44.5%.
One easy way to play the India story is through the India Fund (IFN).
The fund is currently trading 8.28% below its net asset value (NAV) per share of $28.85, which means it’s a better deal than buying all of its component companies individually.
The fund paid a $3.78 dividend last year.
Good hunting,
Christian DeHaemer
Editor, Wealth Daily
*2009 numbers
