Shh. Don’t talk too loudly, other people may hear you. Did you know that India has a new Reserve Bank chairman? I didn’t think you did. No one is really talking about it. Who is he? A guy named Dr. Urjit Patel. He apparently was Mr. Rajan’s number two guy and as you can tell with all the hoopla surrounding the appointment, that the entire investment world is excited. Yes, I know, I am being facetious because really I am a little disappointed.
I agree that he will probably follow in Dr. Rajan’s footsteps. He is known as an inflation hawk, which is all well and good, but I believe in India right now needs a reserve bank chairperson, and I use that term intentionally, that will do more than just focus on inflation.
When Mr. Rajan was appointed by the previous government, I was excited because he represented a new caliber of governor, in that it meant that India was finally taking inflation and monetary policy seriously. I in fact called it the Rajan effect and predictably since his appointment, and then the momentous election of Mr. Modi, FDI has skyrocketed.
The numbers pouring in to India recently are staggering. In 2014, the first year that both rock stars Modi and Rajan made their presence known, FDI was around $800 million and in fiscal 2016 that number has shot up to $4.1 billion. And that is only FDI — other investments in India are also staggering.
2015 saw an increase over 2014, but not the 500% increase of 2016. That was due mainly because there was a period of time when investors were disillusioned with the inability of the Modi government to make substantial changes. Yes, there was a lot of tinkering around the edges, but nothing really until the passage of GST this year. That was a game changer. Now back to Dr. Patel as the new central banker.
Of course I was disappointed that Mr. Modi didn’t take my advice and appoint Dr. Gita Gopinath of Harvard, because she indeed is a superstar in the making, but on Dr. Patel the jury is out. First of all, he is a graduate of the London School of Economics and has deep ties to the Congress Party, which I believe will not allow him to make the changes so badly needed, but we shall see.
Upon his appointment neither the BSE nor the NSE benchmark indexes did much, they just yawned. The NSE benchmark index NIFTY 50 is up YTD around 11%; however, upon Dr. Patel’s announcement the index dipped rather substantially, but has since bounced back. The popular Indian ETFs WisdomTree India Earnings Fund (NYSE:EPI) and the iShares India 50 ETF (NASDAQ:INDY) followed suit. For me India is a definite long term buy but these aren’t the investment vehicles I would choose. the ETFs I would choose are the EGShares India Infrastructure ETF (NYSE:INXX) and EGShares India Consumer ETF (NYSE:INCO). The reasons I chose these two are:
- Because there is a high priority placed on infrastructure development, and
- As GDP growth accelerates, consumer discretionary income will rise, which will boost the consumer sector.
Now finally, if Dr. Gopinath had been appointed, the sun would have smiled down on India and investors would really have something to really cheer about.
Put simply, Dr. Gopinath’s appointment would have boosted investor confidence.
About the Author: Peter Kohli
Peter Kohli is President of DMS Advisors where he is involved in investment research, and in particular the developing markets. He also writes a blog for the Nasdaq website and for Frontera News. Before that, he was CEO/CIO of DMS Funds. As such, he managed the Firm’s operations, including index selection and fund development, and was actively involved in all of DMS Funds’ business development efforts. Earlier, Peter held a variety of financial services-related positions, including a financial planner. Peter holds a Chartered Financial Consultant (ChFC) designation from The American College (Bryn Mawr, PA) and a BA in Mathematics from The Open University (Milton Keynes, England).