India has been one of the few bright spots among emerging markets. This is a country that is not heavily dependent on oil and has a growing consumer population. However, that doesn’t guarantee that investing in India would be a good idea at this time. This notion has been expressed by someone much closer to the situation – as close as one can get.

The Global Situation

The global economy is in disarray. What makes this situation even worse is that analysts working at big firms are going on television and telling people to buy the dips. Nothing could possibly be more irresponsible. If you continue to pour your money into funds that wholly rely on stocks going higher, you could be setting yourself up for dismal failure. You can get much better information and more accurate calls on a historical basis. How can anyone honestly expect stocks to sustainably move higher when the following conditions are present?

  • Plunging commodities
  • Overbuilt and overleveraged China
  • Declining global demand for products and services
  • Oil-producing countries either heavily in debt or on the brink of collapse
  • A U.S. banking system that lent as much as $1 trillion to an unprofitable fracking industry

The list above could be much longer, but that’s not the point of the article. The general point being made here is that India stands out in a positive manner, which has a lot to do with a growing population. (For more, see: India A Bright Spot in Today's Global Investment Landscape.)

India’s Good News

The good news for India is that the consumer is strengthening. Manufacturing PMI hit a four-month high at 51.1 in January versus a reading of 49.1 in December. Anything over 50 indicates expansion. Demand has been strong, and the Make In India campaign has been credited as a big reason. Other campaigns worth mentioning are Digital India and Start Up India. The Indian government also intends to leverage low oil prices by finding ways to encourage domestic exploration, acquiring depressed assets at bargain prices and a focus on clean energy for future growth. Other positives for India:

  • Net exports have increased for 28 consecutive months
  • Transparency (opposed to China)
  • Not heavily impacted by the plunge in energy prices
  • Growing consumer population
  • Unemployment rate of 3.6% versus an average of 9% between 1983 through 2011

India’s Bad News

India still has plenty of problems to fix including poverty alleviation, increased wage growth, the development of skill sets, social justice and sustainable development. Despite a growing consumer population, underemployment remains a concern. Furthermore, private sector investment has dried up due to overcapacity, high debt and reduced demand. The public sector has not seen increased investment. In regards to that person mentioned above, that’s Union Finance Minister Arun Jaitley, who recently stated that a strong domestic economic situation can’t be relied on. (For more, see: Fundamentals of How India Makes Its Money.)

India ETF

The iShares MSCI India (INDA) exchange-traded fund attempts to track the performance of consumer staples, financials, healthcare and information technology companies in India. iShares MSCI India has net assets of $3.54 billion and comes with an expense ratio of 0.68%. INDA also offers a 1.18% dividend yield. This may sound nice, but it means nothing when the ETF itself has depreciated 22.12% over the past year. If you look at a shorter-term picture, such as the past three months, it has underperformed the S&P 500. INDA has slid 12.31%, while the S&P 500 has dropped 9.65%.

INDA has an average daily trading volume of approximately 2 million, which makes it liquid. This might present a trading opportunity. As long as you maintain cash and remain patient, you can make money on almost any position. But it sure is a lot easier when you have the trend right. And in this case, the trend is not right. This proves the point that trends are more powerful than fundamentals. For instance, in this case, macroeconomic conditions are stronger than a healthy domestic economic situation in India. (For more, see: Top 3 ETFs for Investing in India.)

This doesn’t mean INDA should be shed from all consideration. You should strongly consider putting it on your watch list. When global markets tank, go nowhere for months and it seems all hope is lost, that’s when you want to start building a position in INDA.

The Bottom Line

From an economic standpoint, think of India as a young United States. It’s a strong country on the rise, but macroeconomic conditions will not allow for that rise to meet its full potential in the near future. In fact, you should expect India to take a hit in global deflationary environment. The good news is that it won’t take as big of a hit as most countries, and the buying opportunity after that hit takes place will be significant. Those who get in on India at the right time will likely have made an exceptional long-term investment. Unfortunately, that time might not present itself for at least 1-3 years.  (For more, see: Investing in India: Strategies and Top ETF.)

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