THE EAST IS STRONG
INDIA IS THE NEXT CHINA, SAYS FUND MANAGER

Date: May 14, 2006
Posted At: WinnipegFreePress.com
By: Geoff Kirbyson

WHOEVER coined "power to the people" almost certainly didn't have economics and investments in mind when they came up with the popular 1960s and '70s catchphrase.

Back then, it was a call to arms to protest everything from the Vietnam War to civil rights violations to workers' rights. The phrase was even immortalized in song by John Lennon.

"Power to the people" is particularly appropriate when it comes to the economies of China and India, two countries that are home to more than one-third of the world's 6.5 billion inhabitants.

Much has been written about China over the past few years as its middle class has exploded, triggering a staggering demand for oil, natural gas and metals. Several hundred million people in those countries have begun to experience electrified homes, indoor plumbing and cars for the first time.

Bhim Asdhir, president and CEO of Toronto-based Excel Funds Management Inc., said India is about 10 years behind its neighbour to the east and is poised to be the next China.

"When you're looking at making money, India can deliver it," he says. "Nobody is disputing it will be a major economic force over the next five years. If you missed out on China...."

Asdhir says India's 1.1 billion inhabitants are growing by more than 30 million people -- that's about the size of Canada -- every year. That requires new roads, bridges, airports, seaports and schools and other infrastructure to essentially "build a new India," he says.

"The real opportunity is when the growth is taking place. You shouldn't (disregard) India just because it's on the other side of the world," he says.

Despite the distance, Asdhir says India has many of the same ingredients that helped propel many Western economies to prominence, such as a democratic political system, open stock markets and the common use of English in business.

Eight years ago, India's economy was churning out an impressive five to six per cent growth in gross domestic product. That has grown to more than eight per cent today and it's projected to be in the eight to 10 per cent range for the next five years, Asdhir says.

He says there are a number of industries, primarily high-tech-related, poised to take off in India. He says there were 100 million phone connections in China 10 years ago. Today, there are 700 million.

In India, there are currently 150 million phone connections and a number of telecommunications companies, such as Nokia and Motorola, have already established a presence there in advance of the anticipated boom.

Raj Pandey, owner of local manufacturing firm APR Industries, recently invested about five per cent of his portfolio in India after seeing its economy up close.

He was one of the Manitoba members on a trade mission to India led by Premier Gary Doer in February and was amazed to see how much things had changed since he immigrated in 1963. Even though he visits every few years, Pandey says there has been "phenomenal" change in India over the last five years in particular.

"That country is progressing so fast, there is so much activity, it's just booming. It's like a railroad engine. When it starts moving, there's no way of stopping it," he says.

Pandey says he believes there's money to be made in India but he's going to keep his exposure to his homeland relatively small for the time being.

"I'm still moving cautiously because it's still new but I do see the opportunity. As I get more comfortable, I will plow more money in there," he says.

Shyamala Cowsik, India's high commissioner to Canada, says the burgeoning trade relationship between Canada and India was started by former Prime Minister Jean ChrŽtien but it really flourished under his successor, Paul Martin.

"There have been more visits by ministers and senior officials between the two countries in the last 15 months than there have been in the past 10 years," she says.

Cowsik says India's economic surge has been followed in lock-step by a reduction in the number of people living below the poverty line. Thirteen years ago, 35 per cent of Indians were among the poorest of the poor. Today, that's fallen to 20 per cent.

There are few ways for investors to invest directly in India. One is through mutual fund companies, such as Excel and Toronto-based Morgan Meighan & Associates.

Indirectly, Cowsik says Canadians can put their money in companies that do business in India -- such as aerospace giant Bombardier Inc., auto parts supplier Magna International Inc., and financial services players such as Scotiabank.

Colin Ryan, managing director of BMO Nesbitt Burns in Winnipeg, says he thinks India is an interesting proposition for investors because its economic growth is being driven by a highly-educated and motivated workforce.

He says the Canadian market, which is dominated by metals, minerals, natural resources and oil and gas, is well positioned to benefit from India's growth.

"India is determined to catch China. (As a result), the oil-exporting nations will probably be the world's most important global investors. That includes Canada," he says.

The outlook for India

It's hard to ignore the economic power of 1.1 billion people. That's why a growing number of people in the investment community and their clients are taking a look at India. They've seen what has happened in China, with its slightly larger population, they've noticed the similarities with India and they're acting accordingly.

Here are some facts and predictions about the world's second-most populous country:

• India is forecast to be the third-largest economy (at $27 trillion US) in the world by the mid-point of the century, leap-frogging Japan to sit behind China and the U.S.
• India's per capita income in dollar terms will grow by 35 times by 2050.
• India will have a consumption-led boom. (There are 99 new shopping centres currently under construction in the country with another 280 in the planning stages.) Retail sales are rising at 28 per cent per year.
• More than 125 Fortune 500 companies now have research and development bases in India.
• Some of India's fastest-growing industries include agriculture (11 per cent), manufacturing (nine per cent) and electricity (seven per cent).
• 80 million Indians have mobile phones and 2.5 million new customers sign up every month.

Source: Excel Funds Management Inc.

geoff.kirbyson@freepress.mb.ca