How India Became the World’s #1 Stock Market

Flag of India in the shape of India

For all its fans among those seeking enlightenment, not everyone has a high opinion of India.

Arthur Koestler’s 1960 classic book, “The Lotus and the Robot,” unflatteringly described his experience of arriving in Bombay (Mumbai) as “the sensation that a wet, smelly diaper was being wrapped around my head by some abominable joker.”

Global investor Jim Rogers refuses to invest a dime into India, saying it’s “a wonderful country, but a terrible investment.”

Yet, India is now the single best-performing stock market in the world among the 45 global stock markets I monitor. And the Indian market’s recent rise has propelled India into the ranks of the 10 largest global stock markets in the world.

No wonder India is becoming the global investment story of 2014.

My India recommendation to subscribers in my trading service, Triple Digit Trader, is up 48.05% just since April 3. India’s 13.3% weighting in my firm Global Guru Capital’s “Global Gains” Investment Program has also helped boost my clients’ returns significantly.

The Indian market’s rise has a simple explanation: the recent election of Narendra Modi as India’s next president.

India: What Happened?

Despite the stock market’s recent rise, India has been Asia’s most disappointing long-term growth story.

Thirty years ago, India’s per capita gross domestic product (GDP) was equal to that of China. Even 10 years ago, India boasted close to a 10% annual growth rate, thanks to high investment and a highly educated cadre of internationally oriented entrepreneurs.

But then something went wrong. Today, India’s GDP stands below Italy’s. The majority of manufacturing workers operate in factories without electricity. Infrastructure is decades behind China. Only 3% of Indians pay income tax. Say the word “India” to any businessman in Asia, and he thinks “bureaucracy, incompetence and corruption.”

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Modi: India’s Ronald Reagan?

Investors are betting that Modi’s election is set to change all of that. And they just might be right.

Modi came to power in a landslide victory, sweeping the Indian National Congress from power. The clear and decisive win for Modi’s BJP brought to an end 25 years of often fragile coalition governments and has been hailed as the biggest change in Indian politics since it gained independence in 1947. The BJP’s majority in India’s lower house makes it much easier now to push through crucial reforms to stimulate higher rates of economic growth.

So what can India expect from its new president?

Already hailed as the Ronald Reagan of India, Modi’s mantra has always been “less government, more governance.”

Modi’s vision is of a strong India focused on economic development, not on traditional feudal charity or government handouts. Modi has promised to raise economic growth rates to improve infrastructure and to slash bureaucracy as part of his goal of creating 250 million jobs in 10 years. Investors expect stalled reforms to be revived quickly, and that foreign investors will be welcomed back into the country.

These are all, of course, fine words. And Indian politicians don’t have a monopoly of “hope and change” as a political mantra to get elected — but then falling short in reality.

The difference is that Modi actually has a track record.

Even detractors concede that Modi is a doer. All of the things he promised for India he achieved as Chief Minister of the region of Gujarat since 2001. During Modi’s reign, Gujarat — a region with the population of the United Kingdom or France — led India in GDP growth. Gujarat today has only 5% of India’s 1.2 billion population, yet it accounts for 16% of India’s industrial output and 22% of its exports. Gujarat has the best highways and roads in India. Industry and farmers enjoy uninterrupted electrical power. The bureaucracy works well, courts are fast and graft is minimal.

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In short, hundreds of millions voted for Modi in the hope that he could replicate Gujarat’s success across all of India.

India as an Investment

With Raghuram Rajan, former chief economist at the International Monetary Fund (IMF) and University of Chicago professor, head of the India’s central bank and a doer like Modi at the helm, the recent elections offer India’s best chance to break out of its economic slumber.

Modi’s challenges are many. He does not control the Upper House. He has to navigate through India’s complex federal structure where state Chief Ministers play regional politics. That’s tough for a leader like Modi with an autocratic, CEO style.

And Modi’s biggest impediment isn’t legal restrictions. It’s changing the chaotic and corrupt culture of business in all of India. And that is a hard, hard thing to do.

Modi did impressive things in Gujarat. The question is, can “India’s Reagan” do it for the rest of the country?

Time will tell.

But for now, enjoy 2014’s ride in the world’s best-performing stock market.

NOTE: Global Guru Capital is a Securities and Exchange Commission-registered investment adviser, and is not affiliated with Eagle Financial Publications.

In case you missed it, I encourage you to read my e-letter column from last week about a company you can bet on beating Amazon. I also invite you to comment in the space provided below.

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