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India is Catching Up With China

By Mad Hedge Fund Trader | Fri, 29 October 2010 17:24 | 3

When I first visited Calcutta in 1976, 800,000 people were sleeping on the sidewalks, I was hauled everywhere by a very lean, barefoot rickshaw driver, and drinking the water out of a tap was tantamount to committing suicide. Some 34 years later, and the subcontinent is poised to overtake China’s white hot growth rate.

My friends at the International Monetary Fund just put out a report predicting that India will grow by 8.5% this year. While the country’s total GDP is only a quarter of China’s $5 trillion, its growth could exceed that in the Middle Kingdom as early as 2013. Many hedge funds believe that India will be the top growing major emerging market for the next 25 years, and are positioning themselves accordingly. Look at the country ETF’s, with India’s (INP) up 22% in 2010, compared to a lowly 4.5% for China’s (FXI).

India certainly has a lot of catching up to do. According to the World Bank, its per capita income is $3,275, compared to $6,800 in China and $46,400 in the US. This is with the two populations close, at 1.3 billion for China and 1.2 billion for India.

But India has a number of advantages that China lacks. To paraphrase hockey great, Wayne Gretzky, you want to aim not where the puck is, but where it’s going to be. The massive infrastructure projects that have powered much of Chinese growth for the past three decades, such as the Three Gorges dam, are missing in India. But financing and construction for huge transportation, power generation, water, and pollution control projects are underway.

A large network of private schools is boosting education levels, enabling the country to capitalize on its English language advantage. When planning the expansion of my own business, I was presented with the choice of hiring a website designer here for $60,000 a year, or in India for $5,000. That’s why booking a ticket on United Airlines or calling technical support at Dell Computer gets you someone in Bangalore.

India is also a huge winner on the demographic front, with one of the lowest ratios of social service demanding retirees in the world. China’s 30 year old “one child” policy is going to drive it into a wall in ten years, when the number of retirees starts to outnumber their children.

There is one more issue out there that few are talking about. The reform of the Chinese electoral process at the next People’s Congress in two years could lead to posturing and political instability which the markets could find unsettling. India is the world’s largest democracy, and much of its current prosperity can be traced to wide ranging deregulation and modernization than took place 20 years ago.

I have been a big fan of India for a long time, and not just because they constantly help me fix my computers. In August, I recommended Tata Motors (TTM), and it has gone up in a straight line since, rising 38%, instantly making it one of my top picks of the year. On the next decent dip take a look at the Indian ETF’s (INP), (PIN), and (EPI).

By. Mad Hedge Fund Trader

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  • Anonymous on October 30 2010 said:
    It sounds good, but it doesn't sound right. One thing though is certain. Graduates of the Indian Technological Universities who come to the US will outcompete Americans. That's why one of the leading characters in my novel will end up teaching small children mathematics.
  • Anonymous on November 02 2010 said:
    Its all very well having call/service centres in India, but half the time you simply can't understand their English. They accent a lot of their English words differently, and it comes out very unclear. Someone from Glasgow talking to someone in Bangalore might as well be speakimg double dutch...Aside from that, yes the Indians are a highly intelligent and well educated people. I've always got on well with thiose I've met. They have put their Raj heritage to excellent use. I think it will be a close call as to who outperforms whom between India and China. Both countries have ancient science based cultures. Europeans would still be in mud huts if not for imported Chinese inventions in the Middle Ages. It was arguably the Indians who civilised the British during the Raj, not the other way. So, there is much to watch out for in education, training and development as the Indians catch up with the Chinese.
  • Anonymous on November 03 2010 said:
    Make sure there that if India gets permanent seat in UNO in next 3 year after words u can see the growth story of India.And abt. beating china that already proved by many well known scholers and GURUS.......But the bad luck of india is that many successful business leaders in Fortune listed companies is Indian only why.....India is having lot of supply in skills as compared to other countries in Technology innovation, Pharmaceuticals , Software, But still india has to do lot more in Agriculture revolutions......

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