| Tuesday, May 20, 2014 | Issue #55 | The $11 Retirement Secret (Really)... Please... Don't make another financial move until you review our secret for a far wealthier retirement. Over time, it can mean MILLIONS more in your pocket. Yet you can get started with just 11 measly dollars! Details here.
Eric Fry, reporting from Laguna Beach, California...
Seventeen years ago, on April 2, 1997, I nervously took the podium of the Grant's Spring Investment Conference in New York City to present an argument for buying Indian stocks. In a 40-minute speech titled, "Intel vs. India - The Quest for Value," I argued that Indian stocks were undervalued and underappreciated... at least in relation to widely adored tech stocks like Intel.
The audience of professional investors, which included legendary hedge fund managers like Leon Cooperman and Michael Steinhardt, seemed more amused by the idea than genuinely interested. After all, during the preceding three years, the stock of Intel (Nasdaq: INTC) had quadrupled, while The India Fund (NYSE: IFN) had slumped more than 40%.
Intel was a darling; India was a basket case. End of discussion.
Despite the palpable skepticism in the conference hall, I persevered with my presentation. After issuing a few tongue-in-cheek comparisons between Intel and India - "One makes D-RAMs; the other makes ashrams"... "One has Andy Grove; one has mangrove" - I proceeded to offer a series of more substantive comparisons and contrasts.
For starters, I observed, "One is expensive and widely adored; the other is inexpensive and routinely ignored." I then identified key aspects of the bullish case for Indian stocks and predicted, "The long-tem investor will fare much better by selling the popular tech stock and buying out-of-favor Indian stocks."
Unfortunately, four years later, that prediction seemed utterly ridiculous. Thanks to the tech-stock mania of the late 1990s, Intel's stock easily outdistanced India Fund. By January of 2000, every investor on Earth wanted to own Intel, Cisco and TheStreet.
But then fate took a different turn. The high-flying tech sector collapsed, while the Indian stock market kept chugging along. Before long, owning Indian stocks didn't seem quite as ridiculous as it did before.
During the 17 years that have passed since I dared to admire Indian stocks in public, The India Fund has delivered a dazzling return of nearly 800%, compared to a gain of only 90% for Intel.
Bravo for the Indian stock market!
But The India Fund's spectacular 17-year performance masks a notably unspectacular performance during the last few years. Since the end of 2010, the India Fund has delivered a loss of 15%.
This lackluster result is no big surprise, given India's decelerating economic growth.  But there may be a major change in the wind, thanks to the surprising results of India's recent national elections.
Indian stocks may have finally busted out of their funk, and may be embarking on another multiyear advance. Our colleague Sean Brodrick brings us the details below...
Indian Stocks Catch Fire By Sean Brodrick
 | | Did you hear about the big election? I mean the really big election - the one that just took place in the world's biggest democracy, India. Narendra Modi and his business-friendly Bharatiya Janata Party (BJP) cruised to a landslide victory over the socialistic Congress Party. And this change has big implications for stocks and commodities - especially gold.
The BJP also gained control of parliament, which gives Modi and his party a solid mandate for sweeping economic reform.
This was not just some same-old, same-old election. It was remarkable in a couple of different ways. This election was the "world's largest," Reuters reports. "A record 500 million ballots were cast from the Himalayas in the north to the tropical south, with voters braving blistering heat for a record 66 percent turnout."
And after all those votes were tallied, Modi's landslide victory brought a decisive end to the Nehru-Gandhi dynasty that has dominated Indian politics ever since India gained independence in 1947.
Modi is a Hindu nationalist, which scared some of the non-Hindus. But he's also very pro-business... and THAT got everybody's attention.
India has been the "sick man" of Asia for many years. This fiscal year's GDP will be below 5%. That's near-decade lows and far too low for an emerging market with a growing and young population. Business confidence is in the gutter, and corruption is choking the lifeblood out of commerce with required bribes disguised as subsidies... So some good ol' fashioned capitalism is just what the doctor ordered.
Is Modi the man to do it? Yes! For 12 years, he was chief minister of Gujarat, a state with 60 million people. During that time, he cut red tape, built up infrastructure and fought corruption.
No wonder business and investment thrived in Gujarat. Its GDP tripled under Modi's leadership. Gujarat produces 25% of Indian exports, yet accounts for just 5% of the nation's population.
Now, voters are hoping for a "Modi miracle" in the rest of India. He has his work cut out for him, but India's political pundits expect economic growth to accelerate as Modi deregulates "protected" industries and pours government funds into long-neglected infrastructure projects. Not surprisingly, the EGShares India Infrastructure ETF (NYSE: INXX) really took off recently.
But infrastructure companies are not the only beneficiaries of the BJP's victory. These three stocks are also obvious potential winners: - Tata Motors (NYSE: TTM) - Tata is the largest automobile company in India. It is also the fifth-largest truck manufacturer and the fourth-largest bus manufacturer in the world.
- HDFC Bank (NYSE: HDB) - This is one of the largest banks in India, with a retail network of 3,336 branches and 11,473 ATMs in more than 2,000 cities.
- Dr. Reddy's Laboratories (NYSE: RDY) - This is a global pharmaceutical company that sells drugs worldwide. But it's based in India.
As for India-targeted ETFs - money is already flowing into them. Those include The India Fund (NYSE: IFN) and the Market Vectors India Small Cap Fund (NYSE: SCIF). Just take a look at how The India Fund is blasting off...  [Sean's Note: You should know that India Fund is what's called a closed-end fund, which makes it kind of a strange bird. Unlike a normal mutual fund, closed-end funds do not always change hands at their exact net asset values (NAVs). In fact, closed-end funds often trade for prices that are above or below their NAVs. At the moment, IFN is selling for $24.25 per share, which is about 9% below its NAV of $26.66 per share. That means that a buyer of India Fund at today's quote is buying $1 worth of stock for only $0.92.]
So sure, India's stocks and funds have bounced. Don't chase them. Instead, if you want to ride India's potential rocket, wait for the pullback. Just remember to do your own due diligence before buying anything.
Moving to gold, what does the election mean for the yellow metal?
Well, let's not forget that the outgoing Congress party clamped down on gold imports as a way to balance India's trade deficit. The import restrictions imposed by the Congress party included a 10% import duty and a so-called 80-20 rule requiring 20% of all imported gold to be re-exported.
But many folks, especially long-suffering jewelry dealers, are excited that Modi might lift the lid on gold imports.
India's demand for gold in 2014 was expected to be between 900 and 1,000 metric tons - little changed from last year - but that was before the government changed. If restrictions are lifted, Indian demand could soar, which could light a fire under gold prices.
Bottom line: Modi's victory could be one of the best things that's happened to the gold market in many years. We'll be watching.
All the best,
Sean Brodrick
for Free Market Café Photo originally posted by Subhankar "Kenny" Sahu on Flickr. | | |
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