Now is the time to invest in India, the country’s Prime Minister, Narendra Modi, said yesterday. Over the last three months, portfolio investors have agreed with that sentiment.

Anyone with money put to work in India since April is up nearly 30%, beating the S&P 500 and emerging markets in general.

In his speech, distributed in clips on Twitter yesterday, Modi called on U.S. natural gas companies to invest in India, and for technology companies to consider a nation where there are around 500 million internet users…in rural India alone.

Might the stars be aligning for India?

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“We definitely like India long term,” says Julia Hermann, senior global strategy analyst, from Cartica Management. “It has probably the best structural tailwinds of any emerging market. There is a lot of room for infrastructure development which doesn’t exist in most big emerging markets.”

India is undergoing an infrastructure build-up, which it needs if it wants to be seen as an alternative to China. China has all the good ports. India is lucky to have two.

“This is a huge opportunity,” Modi says. “We can become a base for supplying regional markets,” he says.

India’s stock market has experienced large swings due to the recent pandemic. This has subsequently led to many securities trading on the cheap.

Unlike China and Brazil, India is not widely followed by American investors because the market doesn’t really have a differentiating story from other big emerging markets. It’s got a big consumer base, but China has more. It’s not a beneficiary of higher commodity prices like Brazil, and if commodities are cheap, like they are now, India tends to get expensive, and China — which also benefits from lower commodity prices — ends up looking even more attractive, not the least because it is a large weight in the indexes now.  

Passive emerging market investors are pumping a larger percentage of their dollars into China even if they don’t want to. They literally have to look for an emerging market ex-China fund not to be overweight China in comparison to India, for instance.

Yet, India has been the fastest growing economy in the world for some time as measured by GDP growth where it averaged 6.13% from 1950-2020. Besides China, it will be the only country to grow this year.

For the 5,000 public listed stocks in India compared to 3,700 listed in the U.S, around 500 hedge funds and mutual funds combined track India stocks closely.

“If you want to make large sums of money with less competition and would like to diversify your risk; look no further than India,” says Paul Gray, CEO of New York-based hedge fund IronHold Capital. India is their favorite emerging market.

They run a proprietary strategy called Global Deep Value, which they say is similar to that of Berkshire Hathaway’s model, only with an India twist to it. Their fund looks to make money based on the low coverage and wide price gaps that exist in the Indian stock market. Their GDV Strategy portfolio invests in anywhere from 150 to 300 companies strictly in the U.S. and India. The portfolio launched three months ago and is for high net worth investors.

India is the world’s largest democracy, so if you think things move slow in the U.S. and Europe, try there. But under Modi, there has been positive changes to tax structure, something investors and corporations love, and a realization that India can benefit from companies looking to “derisk” their supply chain away from China.

This month, another Apple
AAPL
supplier — Pegatron — said it will set up shop in India after Foxconn said they will do the same. Foxconn is investing $1 billion in a Chennai manufacturing plant, getting access to Modi’s 15% flat tax for new manufacturing operations.

India’s biggest eyesore for the market has been its banking sector. It’s been a problem for at least five years and from a macro standpoint, it still turns off some investors to the India story.

Even Cartica has recently cashed in their chips, despite liking the long term outlook there.

“India banking has been grappling with getting liquidity to where it needs to be,” says Hermann, which seems to be her biggest issue with India as an investment story. “The shake up in their financial sector over the years has really hurt the trust factor and risk assessment is more difficult for lenders than it used to be,” she says. “Money isn’t going to businesses as quickly as it should.”

India watchers know that story well.

One of the posterboys of the non-performing loan problems at Indian banks is former Indian billionaire Vijay Mallya. The liquor kingpin and bankrupt Kingfisher airlines owner now lives in London and is not exactly welcome in India.

Many emerging economies have experienced market downturns of late, especially due to the pandemic. Analysts on the Street suspect there will be even further volatile swings throughout the global economy once stimulus wears off, the U.S. election goes into full swing in the fall, and China-U.S. uncertainties continue to surprise, usually to the downside.

Over the last several years, India has remained relatively drama free compared to its BRICS counterparts. South Africa is grappling with economic difficulties unlike its peers, and racial tensions. China has the trade war and the remapping of the global supply chain weighing on it. Brazil has had impeachments and corruption scandals and the arrest of a once beloved president, and Russia has been in sanctions purgatory since the summer of 2014. All of them suffered through the pandemic.

India too is not out of the pandemic woods. But if Modi is right, this is a good time to get in. The price is right, IronHold Capital money managers believe.

“It is an interesting time for savvy value investors who have the requisite fire power to take advantage of distress,” says Gray.

IronHold’s new fund was backtested over a 25 year period and it looks like it returns around 25.53% annualized.