For months now, I’ve been beating the drum on “the next China” — India.
As I noted this spring, the country just reformed its byzantine tax code…
Thanks to important legislative reforms, the country is also pivoting toward a manufacturing-based economy…
And as I noted back in 2015 (when oil prices were 20% lower than now), India’s thirst for energy will continue to propel the global oil market.
So it’s nice to see business consulting firms like Deloitte jumping on the bandwagon. As the firm recently noted to Bloomberg, India has an important economic tailwind — demographics — pushing it in the right direction.
“India will account for more than half of the increase in Asia’s workforce in the coming decade,” writes Deloitte’s economist. “There will be rising economic potential … The consequences for businesses are huge.”
In fact, they’re so huge that India just imported its first-ever shipment of U.S.-produced crude oil. This summer, the state-owned Indian Oil company contracted for a 2 billion barrel shipment from Texas. Two other India petroleum companies have their Texas shipments in the works.
So where does that leave emerging market investors?
Nice, Quick Profits
Since my last article about India’s roaring economy, the two Indian investment exchange-traded funds I mentioned — the WisdomTree India Earnings ETF (NYSE: EPI) and the PowerShares India Portfolio ETF (NYSE: PIN) — are each up around 10%.
Those are nice, quick profits. For short-term-oriented investors, now’s not a bad time to sell into the current fervor and harvest some easy gains.
Why take profits now, if I’m so bullish on India?
The long-term picture remains bright. But as the Financial Times recently noted, India’s economy has a few shorter-term structural problems it’ll need to work through in the next handful of quarters:
Companies and banks remain weighed down in high levels of stressed debt. Exports have faltered, private investment has fallen steadily since early 2016 with little sign of an imminent pickup.
These kinds of problems are typical of nearly any high-growth emerging market economy. Every so often, rising expectations need a reality check.
When investment cycles turn down, companies pull in their horns. Consumers cut back. Everyone retrenches. It’s a healthy development that weeds out the inefficient and overindebted.