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The Rupee Road to Riches

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I don't know about you, but I get nuts sometimes trying to fix a problem associated with my computer, fax machine, printer or TV through a phone conversation with a supposed expert. Invariably, I wind up with some Mr. Fix It in India. At least 90% of the time, maybe more, I can't understand the fixer, and he, in turn, doesn't understand me. Maybe it has happened to you, as well.

But on another scale -- its appeal as a potentially exciting money maker in the investment arena -- India, which boasts the planet's third largest economy and its second biggest population (1.15 billion), speaks loud and clear.

One Indian bull is Michael Larson, editor of the Safe Money Report newsletter in Jupiter, Fla. In the latest issue, he vigorously pitches an investment passage to India as he essentially makes the point that owning a stock portfolio without overseas representation is equivalent to taking a shower without the use of water.

In brief, he feels the absence of non-foreign equities just doesn't make any sense, especially given the economic plight of the U.S. and the big disparities in economic growth here and abroad.

As Larson puts it, "the contrast between what's going on in the U.S. and leading overseas markets couldn't be starker." In brief:

  • While Capital is fleeing our shores, it's flooding into foreign countries.
  • While the economy is stagnating here, it's booming there.
  • While interest rates are pegged to the floor here, they're rising overseas, attracting even more money.

In the case of India, Larson notes it's burning up the world stage. For example, in its most recent fiscal year, its GDP grew by a blistering 8.8%. What's more, it's on track to grow by almost 9% again in 2011.

Apparently, the global investment community is hot to trot with India. So far this year, a record $35 billion has been plowed into Indian stocks and bonds, with foreign funds pumping more than $28 billion into the country's primary and secondary equities. The Indian stock market, as reflected in its benchmark Sensex index (equivalent of the Dow), is up 11% year to date or 16.7% in the past 52 weeks.

The Indian rupee is also on a roll, having gained almost 6% in the past couple of months, the second best showing in Asia. In addition, total foreign reserves have exploded eight-fold in the past decade and are now just shy of $300 billion, which gives India a massive monetary war chest it can tap into as needed.

Meanwhile, India's central bank has been steadily raising interest rates (six increases so far this year), pushing short-term rates to 6.25%. Meanwhile, long term bond yields are the most attractive vis a vis American yields that they've been in the past decade.

Incidentally, India, according to Forbes, now has the world's third largest number of billionaires (69).

The best way to invest in India?

Larson casts his vote for PowerShares India (PIN), an exchange-traded fund that owns 50 of the country's leading companies, spread across such industries as oil, banking, telecommunications and manufacturing. He thinks this ETF, whose top holdings include such Indian stocks as Reliance Industries (10% of the ETF), Infosys Technologies (9.9%) and Oil & Natural Gas Corp. (8.6%), has the muscle to generate a 20% gain over the next 12 months.

The ETF regularly trades a couple of hundred thousand shares a day on the Big Board, which, Larson says, makes it a great liquid way to profit from the resurgence in India's economy.

It all sounds great, but some words of caution are in order. Investing in India is speculative! Inflationary fears are on the rise, India faces a shortage of qualified employees and the country's educational system leaves much to be desired.

Further, the Reserve Bank of India recently warned that rising food prices would put upward pressure on inflation and interest rates. Likewise, Indian stocks are highly vulnerable to the frequent sharp selloffs in Asian markets.

The bottom line: U.S. tourists back from India frequently tell me about the mass poverty they see. There's no denying that, but for now, at least, the facts suggest opportunities are on the rise there for going from rags to riches.

What do you think? E-mail me at