India Has Been Hard to Access for Foreigners. Until Now.
According to Lutts, India needs capital from the outside. The Indian government will be creating some new structures to help finance this growth—things such as preferred stock and convertibles could be enhanced to allow creative financing. Foreign ownership restrictions are about to be relaxed to help finance the needs of the country.
Lutts Banking on—and in—India
Lutts likes the banking sector in India, as he sees India as a very “under-banked.” The average bank in India grows annually at 15%. For example, the State Bank of India (which Lutts believes is middling or poorly run) has seen 10%–12% growth per year; Housing Development Finance Corporation (HDFC), which Lutts thinks is managed better, has seen growth at 20%–25% on an earnings basis. He believes 50 years from now 75% of Indians will have bank accounts, and this creates a large growth opportunity for the banks.
Final Thoughts: Optimistic on Innovation
Lutts has been looking for growth and sees innovation accelerating at a pace that is hard to imagine. He cited developments in the alternative energy industry and biotechnology fields. He has been studying growth companies over 30 years—there tends to be a lot of value destruction for old guys, and value creation for new entrants. He is very optimistic about future technology development potential in these areas and others.
Lutts sees India as a long-term opportunity. He doesn’t think it’s the best investment for next three weeks or three months but really a long-term piece of his portfolio that he’s looking at over the coming years.
Unless otherwise noted, data source is Bloomberg, as of 2/28/2015.
Important Risks Related to this Article
Investments in emerging, offshore or frontier markets such as India are generally less liquid and less efficient than investments in developed markets and are subject to additional risks, such as risks of adverse governmental regulation, intervention or political developments and investments focused in India can be increased by the impact of events and developments associated with the region, which can adversely affect performance.
Foreside Fund Services, LLC is not affiliated with Cabot Wealth Management.