Buy India Infrastructure

It has gone up relentlessly for the past year. But the fears of Fed rate hikes have died on slow economic data.

Over the past two months, UPP has put in a lower high and a lower low. This pattern is called a flag formation, which suggests consolidation or reversal.

Don't get me wrong — it could move higher here based on slowing growth in China and the possible Greek exit from the eurozone. But at the very least, the uptrend is broken, and you can expect choppier trading from here.

Simple, Two-Part Investment Tool

At times of extreme currency speculation, I use a simple investment strategy that has paid off handsomely over the years: I find the most undervalued currency located in the fastest-growing economy and buy equity in it.

Step Two

The second step is to find the countries that are growing with low inflation. According to the back page of The Economist:

• Egypt has a GDP growth rate of 4.3% with consumer price change of 11.5%.
• Indonesia is growing at 5% with inflation at 6.4%.
• Poland is at 3.1% GDP with a negative 1.5% consumer price change.
• Malaysia is growing at 5.8% with a 0.9% consumer price change.
• India is growing at 7.5% with a 5.2% consumer price change that is dropping — down from 8% last year.
• Russia, Ukraine, and South Africa are declining or growing marginally with rapid inflation.

As investors, we are seeking a discount for value, as well as low inflation and high growth. Looking just at these numbers, Malaysia has the best bang for the buck.

That said, it is a major hydrocarbon exporter, and the trend is against it. With an oil price glut, the upside goes to countries that import oil.

This leaves you with India and Egypt. Egypt could be a buy.

But I like India, and I'll tell you why...

Buy India

India is the world's largest democracy that just voted in pro-business leadership in the form of the Narendra Modi government. It is arguably the first pro-business government in India's post-independence history.

Furthermore, India is a major beneficiary of low oil prices.

According to Bloomberg:

...the 55 percent drop in Brent since June to below $50 a barrel is a gift that could give Prime Minister Narendra Modi the room needed to step up infrastructure spending as he prepares the 2015 budget. He estimates the drop in crude is saving India $5 billion a month. The International Monetary Fund added to the euphoria earlier this week by forecasting India will become the world’s fastest-growing major economy by March 2017.

Boom Away in Old Bombay

The IMF recently came out and said that India's gross domestic product is likely to grow at 6.3% (marginally down from the 6.4% projected in October) in the next fiscal year and 6.5% in the year to March 2017.

The Indian Finance Ministry was even more bullish and said GDP could hit 8.5% this year.

The World Bank has echoed this idea and said that India's growth will eclipse China's by 2017.

Part of this is due to a slowdown in China, and part of it has to do with the slow and chaotic muddling through of the Indian economy. India has a lot of problems, but a centrally planned economy isn't one of them.

Totalitarian states can get the trains to run on time — for a while. But nothing beats a free market democracy for price and demand discovery. It looks like a mess, but it works.

India has been slowly (and I mean slowly) opening up its markets for the past 20 years. With the new government, change is accelerating, and the payoff is here.

The new government is spending money on infrastructure, cutting red tape, and reducing interest rates. The government plans on increasing infrastructure spending from 6% of revenues to 9% with five ultra-mega power projects, as well as new tax-free bonds for roads, rail, and irrigation.

I've recommended following Funds to own

1. Franklin Build India Fund (G)

2. Kotak Infras. & Eco Reform -  (G)

3. Can Robeco Infrastructure (G)

4. Religare Invesco Infra. - (G)

5. Reliance Diver. Power - RP (G)

based on general growth. 

Forbes writes:

...developing Asian countries have an infrastructure demand of about $8 trillion over the ten years to 2020, including $2.5 trillion for roads and railroads, $4.1 trillion for power plants and transmission, and $1.1 trillion for telecommunications, and $0.4 trillion for water and sanitation investments.

Buy it.

All the best,

Ritesh.Sheth CWM^®

CHARTERED WEALTH MANAGER

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