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Steve's note: After visiting India and seeing Indian businesses up close last year, I'm convinced it will be one of the world's best investments over the next decade. My colleague Chris Mayer agrees. For his latest thoughts and recommendations, read on...

Why India Is Still One of the Best Places in the World to Invest

By Chris Mayer, editor, Capital & Crisis
Saturday, January 10, 2009

Last year, when I traveled throughout India, my first stop was Mumbai (or Bombay, as people still call it). I stayed at the Taj Mahal Palace. I remember what an oasis of calm that hotel was after spending a day in bustling Bombay. I remember its onyx columns and archways and domes, its hand-woven carpets and crystal chandeliers, its exceedingly polite staff and impressive Sikh doormen.

Built in 1903 by a Tata, the Taj was a place of grace and old-world charm. From the hotel, you got a panoramic view of the bay, where the fabled Elephanta Island is a short boat ride away. And the hotel was within sight of the historic Gateway of India, where the last of the British troops departed in 1947.

India had a rough year in 2008. It had such a good run – five years of nearly 9% economic growth and a booming stock market – that it had reason to feel it was Fate's spoiled darling. But in a long and checkered life, a good many things come unstuck. And so India has.

In 2008, its stock market lost 60% of its value. The rupee lost 20% against the dollar. Foreign investors pulled out in record numbers. India's best companies struggle. The global economic freeze walloped India hard.

So the question is should you buy India or forget it?

India is a place of staggering contradictions. On the one hand, there is "the Indian miracle." There are the booming companies and spotless IT campuses. The many millionaires minted daily. Yet there is also awful poverty. The World Bank estimates some 420 million people live below the poverty line. That statistic doesn't capture the awfulness of it at all.

The biggest slum in all of Asia, Dharavi, lies right in the heart of India's Manhattan, Bombay. Over some 520 acres live 600,000 people, with one public toilet per 800 people. It is a place of unbelievable filth. Yet many people in India seem to ignore such slums.

I remember sitting in a presentation in which some official from Bangalore showed us slides of new buildings and smooth, functioning roads – a modern city – as he talked up the investment potential of his rapidly changing city. Yet right outside was a completely contrary view: dusty, uneven roads; derelict buildings; and extreme poverty.

Yet there is a lot of good in India. And the promise of India, even now, is still enormous.

Consider that even as growth forecasts come down from 9% to 5%, India is still one of the world's fastest-growing economies. Its people are young and hungry for a better life, unlikely to unbutton the old waistcoat and put their feet up. Half of India's population is under 25 years old. There are many English speakers. The savings rate is near China's lofty levels. "The crowning reason for optimism," opines The Economist "is the savings rate." Unlike the U.S., India is a nation of savers.

And there are many needs and opportunities. India's road network is the world's second largest, but in need of further upgrades. Power outages are common in Indian cities, too. India plans to spend nearly $500 billion on infrastructure over the next five years. Power generation alone should increase 14% annually over that span. It's no wonder that India is one of the better markets for electrical infrastructure giant ABB.

On a more micro level, there are good companies here available on the cheap. The economic deepfreeze won't last forever. If you can sit on Indian investments for a few years, my guess is you will be amply rewarded.

Why not take a shot at Sterlite Industries, India's largest copper producer? All of that infrastructure will eat a lot of copper, and Sterlite is among the world's lowest-cost producers. It should earn at least $1 per share for the 12 months ending March 2009. The stock is around $6 as I write. The company has a huge amount of cash and liquidity on the books – about $3.6 billion. The market cap is only $3.9 billion. With a nearly debt-free balance sheet (total debt is only $390 million) Sterlite will survive this crisis. And copper won't always be so cheap, nor copper stocks so out of favor.

That's just one example of an attractive investment in India today. If you believe in the long-term growth of India, as I do, then now is not the time to overlook it. Stick with the survivors, build low-cost positions, and be patient.

On December 21, 2008, the Taj Mahal Palace hotel reopened for business, 24 days after the terrorist attacks. It will take longer, but India's market will recover, too.


Chris Mayer

Editor's note: Chris Mayer is the editor of Capital & Crisis, a monthly advisory we consider required reading at DailyWealth. With Chris' research, you can always count on contrarian investment ideas you won't read about anywhere else. Click here to learn more about Capital & Crisis.

Market Notes


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