Market Overview

Is India's 7.3% Growth Worth An Investment?

Is India's 7.3% Growth Worth An Investment?

With economic growth slowing worldwide in 2019, investors looking for growth sources have been forced to get creative.

Ongoing concerns about the outcome of the Sino-American trade war have clouded the outlook for the Chinese market, but India has the sixth-largest economy in the world and is expected to grow by 7.3 percent this year, according to the International Monetary Fund.

Unreliable Numbers?

Unfortunately for India investors, growth projections are dropping worldwide — and India may be no exception.

Former IMF chief economist Raghuram Rajan said last week he isn’t confident the GDP growth numbers India reports are accurate.

"I know one minister (in the Narendra Modi government) has said (that) how can we be growing at 7 percent and not have jobs. Well, one possibility is that we are not growing at 7 percent," Rajan said in an interview with CNBC TV18, according to The Economic Times.

Rajan is one of a growing group of economists calling on India to set up an independent third-party body to take a deep dive into the country's economic data and verify its public growth numbers.

India Vs. China

China has also been criticized for its questionable economic growth numbers. Defenders of the estimates say it’s simply much more difficult to compile reliable data in emerging markets like India and China.

According to the World Bank’s statistical capacity score, India ranks in the 91st percentile of all countries in terms of the ability to produce high-quality aggregate data. That score means India should have a much easier time than even China (77th percentile) in providing investors with accurate numbers.

Investors are also often highly critical of China’s communist government.

For India, political instability is creating uncertainty in the market. A recent Pew Research survey found that Indians are concerned over misinformation, corruption and conflicts with Pakistan and Kashmir.

Investment Options

Investors who are looking for growth prospects and are undeterred by the uncertainties associated with India have several major companies to choose from that have listings on U.S. exchanges. The following are several of the largest:

  • HDFC Bank Limited (NYSE: HDB)
  • ICICI Bank Ltd (NYSE: IBN)
  • Tata Motors Limited ADR (NYSE: TTM)
  • Infosys Ltd ADR (NYSE: INFY)
  • Dr.Reddy's Laboratories Ltd (NYSE: RDY)

For investors looking for a more diversified approach, the POWERSHARES IND/PWR SHS INDIA PORT (NYSE: PIN) is one of the best pure-play India ETFs available to American investors. Several institutional investors have major stakes in the PIN ETF.

Neuberger Berman has a $25 million holding; Westwood Holding holds a $10 million stake. Bank of America and Jane Street own an additional $10-million combined stake.

Price Action

Despite the trade war, U.S. and China stocks have been better investments so far this year than Indian equities. Year to date, the SPDR S&P 500 ETF Trust (NYSE: SPY) is up 11.8 percent, the iShares FTSE/Xinhua China 25 Index (NYSE: FXI) is up 11.4 percent and the PIN ETF is up just 4.4 percent.

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