There are four major Indian funds tradable in the United States: EPI, PIN, INP, and FNI. Each of the above fund trades just like a regular stock. EPI and PIN are the only two pure Exchange Traded Funds (ETF’s). INP tracks the MSCI Total Return Index, while FNI invests in China as well as India.

Each fund was started in February of 2008, just after the market peaked. The following chart shows the change in value of the funds from February 2008 to November 2009. As we can see, these funds track each other extremely closely. (Click here)

Consequently, my analysis of each of these funds will be pretty much the same. So let me will just analyze EPI. (Click here)

On the daily timeframe, we see that the EPI collapsed in 2008 very similarly to the rest of the stock market. India’s fortunes are still tied to the United States and to the global economy. I feel that those who predict a ‘decoupling’ of emerging markets and the United States are still premature in their assessment. (Click here)

Recently, EPI broke its uptrend on the fourth test. This break led to a test and failure of the 50 day moving average, but EPI was able to quickly recover. EPI remains above its rising 50 and 200 day moving averages. However, if EPI continues to climb, it will likely appreciate at a slower rate. (Click here)

On the shorter hourly timeframe, we see the choppy action that characterizes funds that follow foreign equities. EPI owns stocks that trade on Indian exchanges. Since the Indian market is open at different hours than in the United States, EPI will typically gap open to compensate for any overnight changes.

The increasing volume during the second half of EPI’s 9 month rally is also of note. Typically, increasing volume with increasing price is a bullish sign. The volume of these new ETFs, however increase as they become more popular and familiar to traders. Increasing volume should therefore be discounted as a signal.

Overall, EPI remains fairly strong and bullish. Nonetheless, EPI may be over extended after bolting upwards over the past 9 months; caution is advised.

-Alexander Thornton

During my first visit to India nearly three years ago, I was staying in the city of Trivandrum near the southern most tip of the country.  One evening, I found myself at a local grocery store to buy some snacks.  When I walked into the store, I was greeted by one of the staff and another person handed me a basket.  Then as I wondered through the store, I noticed that there was a staff member in each isle there to help me find what I needed.  At first I thought this was great, but then, when I was ready to check out, a different employee took my basket of groceries and set it by the checker who was going to ring me up.  The checker then took each item out of my basket and searched for the price on the computer.  After she totaled up my items, I paid for my items and she gave the receipt to another employee at the end of the checkout line who compared every item to the receipt before putting it in a bag.  He then gave me my receipt and passed the bag to one last person who finally handed it to me as I walked out of the store.

My trip to the grocery store left me dumbfounded.  In the course of buying half a dozen items, I encountered seven staff members.  The next day, while on the bus to our worksite, I asked our host about the phenomenon I had experienced the night before.  He explained to me that each person at the store got paid very little and there was no need for such a large staff, but if the owner of the grocery store didn’t give them a job, then they would not have anywhere to work.  He said this business practice was common in India, at least in the southern region where we were, because it is better to have a job and get paid very little than have no job at all.

Does this make economic sense?  Is there a benefit to having many people working for very low wages than having fewer people work for higher wages?  In the United States, we would answer that fewer people being paid a higher wage promotes productivity and efficiency, therefore encouraging business and economic growth. But, with over a billion people in a country one-third the size of the United States, where will everybody work?       How does unemployment affect the development of communities and quality of life for the people?

I could write an entire research paper on this topic, but please share your thoughts about whether these business practices are beneficial or detrimental to the social and economic well-being in India.  Can we in the U.S. learn something from India as we prepare for substantial population growth?
-Emily Schaapveld

Over the past couple years, we have heard from one source or another about China becoming the next “super power” of the world. Despite the buzz about China, in the background, India is quietly, slowly, but surely making its presence known. With the U.S. economy, along with the economies of other developed nations, making a tenuous recovery, the search for a new frontier of economic opportunity and growth is becoming more urgent; it appears that India is fast proving itself to be that frontier. In one of the October 20, 2009 WSJ cover stories, “Indian Firms Shift Focus to the Poor”, (Click here) by Eric Bellman, discusses how India’s burgeoning poor are the next untapped market for durable consumer goods and services.

The article features a discussion of three examples of durable goods that exemplify this shift toward engineering durable consumer goods designed, marketed, and priced for India’s poor. These items radically improve the basic standard of living for many of the poor and include Tata Motors’ $2,200 Nano (a small vehicle analogous to the American SMART car), First Energy’s $23 Oorja stove (which burns three times more efficiently than a regular wood fire and produces significantly less smoke), and the $70 Godrej Little Cool Refrigerator (which features small size, portability, and a simpler design compared with larger refrigerators).

What is emphasized in the article is that these are not cheap knock-offs of Western products. These are entirely different products. In many cases technology used for larger-scale applications are redesigned and reengineered to create a product that is marketable to the lifestyle needs of India’s poor. And while the profit margins are slim, companies are planning to take advantage of the huge volume potential offered by India’s growing population.

The service sector is also tapping into the wealth potential offered by this formerly ignored sector of India’s population. Indian cell phone carriers have begun to offer $20 cell phones with $0.02 per minute plans. These companies report that they are signing up more than five million new subscribers per month to meet the “unexpectedly strong demand . . . in India’s villages and slums”. One Indian entrepreneur, Anurag Gupta, has tapped into the demand of rural and village populations for banking services. His company, named Zero, offers simple mobile banking (similar to an ATM service) which allows villagers to withdraw or deposit a small amount of rupees using a smart-phone and a finger-print scanner. Gupta reports that “the running cost of his ‘branches’ is about $50 a month to serve hundreds of people daily”.

One of the main points that became clear to me from reading this article is that India’s poor, rural, and village constituents have money and they want to spend it. Furthermore, they have demands similar to consumers of developed nations; but in order for this great economic potential to be tapped, goods and services must be tailored to meet the specific needs and lifestyles of this sector of India’s population. India’s engineers have risen to the challenge and are taking a leadership role in meeting these demands, when formerly they had devoted a majority of their ingenuity and R&D capabilities to U.S markets and markets of other developed countries. Now, they are turning inward to their home country to take advantage of growing opportunities.

Indian engineers are “reinventing products to cut costs and reach billions of people world-wide who live on less than $2 a day”. Indian companies are gearing their market research to find out “what the poor want and how much they are willing to pay for it.” Once they’ve done their research, these companies then enlist their research teams to design new products at the necessary price points. All of this is made possible by one of India’s most notable assets- plentiful and inexpensive engineers. As an example, India’s Tata Motors is tapping into this source of ingenuity in developing its cars, “rethinking everything from the engine to the seats to the supply chain to keep the sticker price [low].” Furthermore, due to the growing number of TV networks, radio stations, newspapers, and magazines, India’s poorer population is becoming more aware of products and services available to it.

India is exploiting the very intimate and crowded nature of its slum, rural, and village communities to develop distribution networks for its new products. Door-to-door rural saleswomen have been very successful at selling inexpensive, portable water purifiers. Rural self-help groups and micro-lenders are leveraging their existing ties with smaller, poor communities to get products into consumers’ hands. Gupta’s mobile banking also reflects this ‘grassroots’ approach to distribution.

In thinking about the direction of the global economy, what role do you see India playing? How will India’s success in leveraging the untapped growth potential of its’ poor constituents influence the direction of innovation and marketing for other countries? What do you think this will do for the standard of living in India and abroad? Do you think it’s sustainable? What kind of impact will India’s success in these aspects help or impede the recovery and revitalization of the way the world lives and does business?

I encourage you to read this article if you have the chance. The article discusses how India’s innovation in product development and economic strategy is starting to revolutionize the availability of affordable healthcare for the country and how it may be the source for lowering health care costs in the U.S. Find out which big U.S. company is taking notice!

-Erika Bylund

And to see him come at this from a bit different angle, also/listen to Kaiser’s presentation at TEDx Honolulu.  Click HERE.