Tuesday, September 29, 2009

Investing in India: At Risk of Oligarchic Capitalism

For those interested in investing in India, The Epoch Times had an article on India this weekend. It says that a report from the Asian Development Bank warns that India is at risk of shifting from capitalism to an oligarchic system where a small group of very wealthy people control the economy, and thus politics, and thus the country.

Read the ADB's outlook for India.

Chart of India's GDP (Feb 2009):

“There is a risk that India will evolve toward a condition of oligarchic capitalism, in which the market and political power of major corporations will become a drag on long-term growth and a source of distortion in policy design,” said researchers in a recent report titled “India 2039” published by the ADB.

The article says that about only 10 families in India hold more than 80 percent of the stock in the largest Indian corporations, with obviously troubling influence over politics.

"There is now a growing risk that parts of the corporate sector will wield excessive influence over the state,” "The continuation of a combination of weak and ineffective state and more powerful and creative big business houses will inevitably lead to large-scale misuse of market power and invite a massive backlash against a market-based economic system,”

"India's government urgently needs to develop the fundaments of a viable, competitive, regulated market and take control over its vast resources. If not, India's large corporations could slowly whittle away the country’s democratic market environment.The “concentration of wealth and influence could be a hidden time bomb under India’s social fabric ... India urgently needs more self-regulation by industry as well as strongerand more vigilant independent state organs to ensure more ethical and transparent behavior by the private sector,”.

Indian ETFs

1. PowerShares India Portfolio (PIN): This ETF tracks the Indus India Index which is designed to replicate the Indian equity markets as a whole (top 50 Indian stocks selected from the largest companies listed on two major Indian exchanges)

2. Wisdom Tree India Earnings Fund (EPI): This ETFs invests in Indian companies that are listed on a major stock exchange in India and meet the following criteria:
- at least $5 million in earnings in the last fiscal year.
- market capitalization of at least $200 million.
- average daily dollar volume of at least $200,000 for each of the preceding six monthstraded at - traded at least 250,000 shares per month for each of the six months prior to the Index measurement date.
- P/E greater than 2

3.iPath MSCI India Index ETN (INP): This is an ETN which tracks the MSCI Total Return Index, which is an index that represents approximately 85% of the free-float-adjusted market capitalization of equity securities by industry group within

4.First Trust ISE Chindia Index Fund (FNI): This ETF invests in the ADRs, ADS or stocks of companies both in India and China. It has 50 holdings.

You will notice that the performance of all four is nearly identical.:

(please click to enlarge)

Please note that you may receive technical analysis and alerts of these ETFs, sent automatically to you by entering the symbols in the Technical Trend Analysis Tool, (powered by INO).

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