As of the time I'm writing this (early Friday morning), India's election results are almost complete, and the pro-business National Democratic Alliance (NDA) party is close to winning a decisive mandate.
As the Indian parliament has a multiparty system, it's rare for one party to win a simple majority, which leads to the formation of coalition governments. Subsequently, all kinds of vested interests among the various parties come into play.
The NDA having an overwhelming majority could really set the country up for a big leap in growth. The basic message of getting the economy revved up again resonated with voters.
I've always told investors in the US that the simplest way to imagine India is to think of what the US was about 100 years ago in terms of the kind of economic and social development that's ahead. There's a lot of low-hanging fruit in terms of basic infrastructure and construction, education, and health care, which will all go a long way in improving productivity and incomes. The NDA's manifesto talked about aggressive building of roads and rail networks -- even 100 new cities.
Political rhetoric aside, anyone who has traveled in India can easily see the massive economic multiplier effect world-class infrastructure could have.
India currently has a GDP of about $2 trillion, which is where China was in 2000. China has grown to about $8 trillion on the back of a $23 trillion banking system. In comparison, the Indian banking system has less than $1.5 trillion in assets, which means a lot of scope for capital formation to drive real growth.
The markets have already moved up almost 25% since February 2014 and almost 60% in dollar terms since the emerging markets currency turmoil of Aug 2013, so we could see a "sell the news" reaction or some near-term consollidation.
However, I'm keeping many Indian names on my radar for buying on dips.
My list includes the following funds and ADRs:
The India Fund, Inc. (NYSE:IFN)
iShares MSCI India (BATS:INDA)
WisdomTree India Earnings Fund ETF (NYSEARCA:EPI)
ICICI Bank Ltd. (NYSE:IBN)
HDFC Bank Ltd. (NYSE:HDB)
Tata Motors Limited (NYSE:TTM)
In my opinion, India's election results represent a fundamental change, and when that happens in a continental-sized economy, you have to pay attention.
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