Since the beginning of the Covid pandemic, China has grown its economy at twice the rate of America and significantly faster than regional rival India. But that could be changing soon, due largely to labor conditions.
Surprisingly, those measures of economic success align with the combination (respectively) of three key macro elements: trade deficits, budget deficits and inflation. Who would have guessed America would be at the bottom?
China is still dominating many global sectors. For example, China accounts for about 50% of global shipbuilding, 25% of value added for global manufacturing, 40% of world auto and chemical sales, 30% of construction equipment and 25% of global consumer appliances and electronics.
But wages of Chinese manufacturing workers have steadily increased and, while still significantly below U.S. levels and a bit higher than in Mexico, they are about twice as much as in India or Vietnam, according to a survey by JETRO. Therefore, India and Vietnam are where Apple (AAPL) is planning to incrementally move production.
In September 2022, for example, Apple announced that it plans to produce between five and ten percent of its new iPhone 14 models in India; and in November, Foxconn said it plans to build a $20 billion semiconductor plant in the country with a domestic partner.
India faces three major obstacles in its quest to become “the next China”: investment and business regulations change too frequently and favor domestic champions, tariffs on imports are too high, and the country’s finances are in need of repair. So, whether India turns into the next China is not a question of global economic forces or geopolitics. It is something that will require a sharp policy shift by India’s government.
Given India’s potential, many more global investors should have some exposure to this country of 1.4 billion people. Here are three investment ideas to capture India’s catch-up growth.
3 Ways to Play an Indian Economic Boom
MakeMyTrip Limited (MMYT) is a great play on India’s travel industry in a post-Covid world, as well as digital payments and marketing.
The company was founded in 2000 to initially serve the travel needs of the U.S.-based Indian community. But the company has evolved into a leading global travel company as India evolves into a digital marketplace by providing a comprehensive range of travel services.
MMYT has made some smart acquisitions and strategic partnerships such as with Ctrip, China’s largest online travel group.
Buying a car is something that’s become increasingly realistic for India’s small but emerging middle class, and you can play this trend with Tata Motors (TTM), an India ADR that’s in a nice uptrend.
Tata Motors manufactures and sells a range of cars, sports utility vehicles, trucks, and buses under the Tata, Daewoo, Fiat, Jaguar, and Land Rover brands. TTM has plenty of momentum and is also increasingly becoming a player in electric vehicles.
For a shotgun investment approach with an ETF, I suggest considering the WisdomTree India Earnings Fund (EPI). EPI tracks the WisdomTree India Earnings Index and the performance of profitable companies incorporated and traded in India and eligible to be purchased by foreign investors.
The ETF provides an earning and value approach to India’s equity markets, with energy, materials, and bank stocks accounting for nearly half of the fund’s assets.
EPI’s top three holdings are Reliance Industries, a manufacturer of petrochemicals, synthetic fibers and textiles, Housing Development Finance Corp., a provider of housing finance, and Infosys, a provider of IT consulting and software services.
India is unlikely to catch China in this decade but has upside potential as manufacturing seeks a more diversified base and India responds by making market reforms.
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