India: Ripe for Investment?

Robert Hsu, August 14, 2008

With the Olympic Games under way, many investors are looking around the world for new opportunities for profits. And I think one of the top places they are eyeing in India.

I have written lately about the increasing cooperation between China and India. In this article, I discuss this relationship and the formation of "Chindia." While I think that both countries have a lot of resources to offer, and than an increased cooperation would allow them to grow and flourish, I am still weary about investing in India.

Like I explained in the article, India has a lot of useful resources – land, water, lots of hard-working people and booming industries. But, as I found on a recent visit to the country, I don't think that India is ripe for investment just yet. There are a few key factors that have yet to line up, and until they do, I think that we should put our money in more promising areas. Let's take a closer look.

When I was in India just a few weeks ago, I met with several wealthy investors and fund managers. They are impressive people, and they have enjoyed much financial success. When talking with them, I found out how they accumulated their wealth, and why we can't repeat this now. These investors were able to take advantage of India's bull market and favorable tax treatment, and also be versatile with their investments.

You see, India has seen a long bull market since 1985. Over the next 23 years, the Indian stock market shot up an amazing 6,000% before finally retreating this year. So investors in India's high-growth market were able to snag huge profits during this time. However, some investors saw their profits wash down the drain when the market corrected this year. Now, India is struggling with a weakening stock market and rising inflation, making successful investing there difficult.

Secondly, the wealthy investors I met with have had the burden of paying high taxes on their investment profits. Unlike the U.S.'s high tax rates, only recently has India started taxing short-term trading gains at a 15% tax rate. While this may sound like a deal, you must consider that the country is dealing with record-high inflation -- 12% -- which is already dragging down India's stock market and economy. So the potential for big profits is limited and U.S.-based investors still have to pay taxes on foreign stock investment gains.

Thirdly, these successful Indian investors were dedicated to being versatile in their investments. They did not limit themselves to any one type of investment. Instead, they invested in long-term plays as well as short-term trades when the time was right. That way, they could successfully profit from any moves in the market.

While we cannot use this strategy in the Indian market, we can use it in our own investments. In fact, my China Strategy service focuses on long-term plays to profit from China's economic emergence, and my Asia Edge service offers short-term trades to make money from the Asian boom. Each service offers different types of investments and allows you to profit in both the short and long term. Click here to learn more about my winning China Strategy plays. And if you're interested in short-term trading, click here for Asia Edge.

So is India a good investment right now? Read on to find my answer!

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