Jan 6, 2007

Investing in Indian Stock Market

Typical US investor gets an advice to invest in a well diversified portfolio. The portfolio diversification is maintained across security classes -- such as Stocks, Bonds, Hard Assets, and Cash and also across size and style -- such as large cap growth, large cap value, small/mid cap growth and value, and REIT. Typically a US investor is asked to put 10 to 15% into international stocks.

I think that advice needs to be reevaluated. Large cap and Mid cap growth in this Flat World is global and not just limited to the US. I consider India an integral part of a diversified portfolio. The growth part of of my portfolio comes from BRIC countries in addition to the US and western Europe. The value part of the portfolio is from companies with "global" business -- that means 50% or higher revenues from international markets.

That's the best way to hedge against currency fluctuations.

Indian growth stock industries are value industries in the US. Since India infrastructure is still growing; steel, transport, power, media form a part of the growth section. These businesses have a "real" revenue and are easy to value fairly. That in my opinion reduces the valuation risks.

Investing in only India specific markets is not as accessible. You could invest in South Asia Funds which have upto 18% in India with the rest in Taiwan, South Korea, Thailand. Pure India play is available in two closed end funds --
IIF and IFN. New ETN names INP is available now.

It is important to look at India while planning for your IRA and rollover IRA security selections.