Investing in Indian Equities: A reality check

Sunday, 27 May 2007

How to participate in India's economic growth? What are the options if you live in the United States? This article summarizes our analysis. An article in the Wall Street Journal on Saturday, May 19, 2007 prompted us to publish our article and provide readers and investors some reality check of investing directly on Indian stock exchanges. We earlier published an article on various investment instruments available for investors in the U.S. to participate in India's economic growth. Investment Instruments: India Subsequently, we investigated one particular area - how to invest in India by buying and selling equities listed only on India's BSE and NSE stock exchanges? The Wall Street Journal published on Saturday, May 19, 2007 an article that broadly discusses investing outside U.S.. The reason may want to buy and sell equities directly on India's BSE and/or NSE is because only a small number of Indian companies are listed as ADRs on the U.S. exchanges. Our conclusion has been to stay invested in India through instruments available on U.S. markets. Currently, it is not exactly easy to invest directly in Indian equities. One has to first open a bank account in India and link it to the Indian brokerage account. Linking the two accounts is not problematic. However, opening a bank account requires one to get the Permanent Account Number (PAN) - India's version of social security number. Obtaining PAN is possible but not straight forward. One has to get documents attested. Attestations can be only done by the Indian embassy or consulates. One has to be present in person to get the documents attested. Even after doing all this, you are required to follow certain government regulations of staying within limits of quotas. Foreign investment in Indian companies is highly regulated. If you end up holding stock of a company that falls in a sector for which the quota has been exceeded, the brokerage firm is required to sell of portion of your holding at whatever price it can get. This can happen without your knowledge. So, your best option is to invest in Indian mutual funds and not Indian equities. Indian mutual funds have fixed 2.25% front-end load. At this point, your best option to participate in India's economic progress seating here in the United States is as follows. American Depository Receipts - INFY, WIT, SAY, RDY, TTM, PTI ... Closed-end funds - IIF, IFN Exchange Traded Funds - EEB, EEM, ADRE... Exchange Traded Notes - INP U.S. Companies benefiting from India's economic growth - IBM, DE, CAT, CMI ... Global Companies listed on NYSE or Nasdaq: ABB... Stay put for additional information on these six options in this article. This will be a living document that will be updated periodically. We shall be tracking and reviewing the performance data of the companies mentioned above.

 

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