One Stock Market Where Sentiment is Bad... And Opportunity is Great

Stock-Markets / India Mar 04, 2012 - 11:56 AM GMT

In the fall of 2008, as world markets were busting, I traveled to India to find bargains...

My guide was Rahul Saraogi, a hedge-fund manager who specializes in smaller companies in India. He took the DailyWealth team on a multi-city tour to visit everything from a high-tech outsourcing company to a paper plant. Every company we saw was outrageously cheap.

I took advantage of the opportunity by personally investing in India. I pocketed a triple-digit gain in 14 months... And it sure looks like it's time to consider investing in India again.

With most assets around the world off to a fantastic start in 2012, it's hard to find negative sentiment anywhere on the globe. But there is negative sentiment in India...

Yesterday, I talked to Rahul to get an on-the-ground update on India. He told me, "I have not met a single person here who is optimistic about the Indian markets (and business people here are generally optimistic). Also, globally, people are probably more negative about India now than at any time in the last decade."

That's what I like to hear. When stocks are hated, you can find bargains.

Rahul told me sentiment toward India is so negative because the economy has hit "rock bottom." GDP growth fell to "just" 6.1% last year. (Compare that to 1.7% growth in the U.S. in 2011.) China is still seeing "roaring over-investment" and needs to put the brakes on. But India can and will hit the gas...

India's central bank is one of the few central banks in the world that still has the room to lower interest rates now. Nearly every other country has already cut rates dramatically. A round of interest rate cuts by India's central bank would be like rocket fuel to India's economy and stock market.

And Indian stocks are cheap right now, especially smaller-cap stocks, like the ones Rahul follows in his fund...

Companies that were nominally at 10-12 times earnings a couple years ago (very high quality companies) are now at 4-5 times earnings, because earnings in the last four years have doubled or tripled for these companies. Their stock prices are similar to 2009 levels... but in valuation terms they're a better deal today.

He also pointed out the Indian rupee fell 16% in 2011 versus the U.S. dollar, so it's cheaper for Americans to buy in.

And the uptrend is in place this year... Most India funds are up over 25% year-to-date. (That's in just two months!)

This is exactly what I wait for in an opportunity – negative sentiment, combined with decent value, where the uptrend has begun.

It's a good time to start doing your homework on India now... whether it's buying a general India exchange-traded fund like the WisdomTree India Earnings Fund (EPI) at a P/E of 10.55 or looking at more specific names like Rahul does. (You can read his "on the ground" observations here.)

You may not have considered India before. But sentiment is bad, and opportunity is great. Last time around that was good for triple-digit gains.

Good investing,

Steve

http://www.dailywealth.com

The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

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