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Speaker 1: Welcome Chrillion's I'm Joel Webber and I'm Eric belchunis Eric.

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Speaker 2: There's a country that just hosted the G twenty and

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Speaker 2: it's been in a lot of the headlines this year,

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Speaker 2: and so I felt like it was a good time

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Speaker 2: for us to talk about India.

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Speaker 3: Yeah.

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Speaker 1: In fact, the ETFs India ETFs are doing very well.

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Speaker 1: They've taken in about two billion, that's you know, something

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Speaker 1: around twenty twenty five percent organic growth. So a lot

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Speaker 1: of international has kind of cooled off this year, but

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Speaker 1: India is still pretty hot.

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Speaker 2: You know.

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Speaker 1: This is why it's scraping in ETF analyst troll. You

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Speaker 1: get to go everywhere. And I've been to India a

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Speaker 1: few times in terms of like focusing on it, writing

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Speaker 1: about it. And when I think of India, I think

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Speaker 1: of a couple things. First, you hear they've got a

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Speaker 1: really young population, like half the country of one point

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Speaker 1: like four billion people is under the age of twenty five.

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Speaker 1: They're pretty tech savvy. Their leader Modi is pretty business oriented,

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Speaker 1: and they've got a lot of consumers. This is sort

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Speaker 1: of the story you hear. And one thing I always

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Speaker 1: learn about India is Jeff Gunlock, the famous bond manager

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Speaker 1: said in twenty fifteen, I recommend buying India and then

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Speaker 1: not looking at your statement for twenty five years. So

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Speaker 1: I went and looked. He said that about eight years ago.

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Speaker 1: India's up eighty six percent since then. Now the US

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Speaker 1: is up more. But you're doing pretty good, Joel. But

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Speaker 1: there is a lot of volatility. India can have a

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Speaker 1: really bad year or a bad stretch as an emerging

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Speaker 1: market country. So it's just interesting to you know, all

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Speaker 1: these things are available to you via ETFs, and there's

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Speaker 1: about a dozen India ats. Since I think it's a

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Speaker 1: good time to revisit India.

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Speaker 2: And joining us. On this episode, we're going to have

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Speaker 2: Kevin Carter of i n QQ, which is the India

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Speaker 2: Internet and e Commerce ETF. He's with EMQQ Global, as

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Speaker 2: well as Rebecca Sen, an ETF analyst with Bloomberg Intelligence,

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Speaker 2: this time on trillions revisiting India. Kevin, Rebecca wocome tow trillions.

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Speaker 4: Thank you, Thank you for having us.

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Speaker 2: Okay, Rebecca. Eric mainly focuses on the US and you

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Speaker 2: focus on Asia and some internationals. So I just want

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Speaker 2: to start with you give me a context of like

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Speaker 2: what India and ETFs look like.

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Speaker 4: So India's having a milestone moment where they hosted their

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Speaker 4: first Average twenty summit and they're showing that they're really

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Speaker 4: a clear leader for Asian investors. India is really taking

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Speaker 4: away a lot of the flows from China at the moment.

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Speaker 4: International companies are seeking supply chain diversification to India, with

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Speaker 4: Apple supplier Fox Con building plants in India. iPhone is

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Speaker 4: shifting some of their plants to India away from China,

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Speaker 4: and a few interesting stats about India is that more

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Speaker 4: than half of their population is under the age of thirty.

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Speaker 4: They have the largest youth unemployment rate in the world,

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Speaker 4: but they're also the fastest growing large economy. They rank

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Speaker 4: third by highest number of billionaires, but on a per

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Speaker 4: capital income they ranked tenth, so to put this into perspective,

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Speaker 4: the US GDP per capital is seventy six thousand, while

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Speaker 4: India is only two point three thousand, so that's a

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Speaker 4: huge difference. Mainland China, for instance, is twelve thousand, seven hundred,

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Speaker 4: Japan is forty three thousand. So India is growing at

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Speaker 4: very rapid pace. Their wealth is growing roughly twelve percent

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Speaker 4: annually and from a performance standpoint MSCI. Most of the

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Speaker 4: Indian induses have performed roughly ten percent this year, and

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Speaker 4: from a funds perspective, India is one of the cheapest

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Speaker 4: region by management fees, so on average they only have

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Speaker 4: twenty eight basis points the average management fee on their products,

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Speaker 4: and for the US it's roughly fifty five basis points.

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Speaker 4: Hong Kong is ninety five basis points, Taiwan is seventy

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Speaker 4: five basis points. So a lot of people are looking

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Speaker 4: to India right now because not only is it performing well,

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Speaker 4: but it's also a very cheap area to invest in too.

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Speaker 2: Okay, Kevin, I want to better understand something though, because

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Speaker 2: earlier this year, short seller Hindenburg Research pretty much shook

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Speaker 2: the world when he shorted a billionaire Indian billionaire a

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Speaker 2: Gautam Adanni. So here we are in the aftermath of that. Yes,

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Speaker 2: there's some reasons to be bullish on on India. I

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Speaker 2: think the fact that the new iPhone is coming directly

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Speaker 2: from Fox con factories in India in addition to China,

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Speaker 2: is extremely noteworthy. So talk to us about why iron

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Speaker 2: QQ is a good idea for you.

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Speaker 3: Well, I think that you know when you look at

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Speaker 3: emerging markets. You know, the thing that's emerging are the people.

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Speaker 3: You've got six and a half billion people and they're

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Speaker 3: moving on up and they want stuff. They want more

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Speaker 3: and better food, better clothing, appliances, They want to take vacations,

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Speaker 3: go to boom we get automobiles or some other motorized vehicles,

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Speaker 3: and they want their kids to go to college. And

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Speaker 3: so that's that's the story, and that's been the story

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Speaker 3: and that'll continue to be the story. And India right

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Speaker 3: now is not just the most exciting emerging market today,

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Speaker 3: but it's kind of like the perfect emerging market. And

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Speaker 3: the reason is that and we saw this in China.

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Speaker 3: I mean, this is basically like China fifteen or seventeen

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Speaker 3: years ago when I first got involved with the emerging markets.

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Speaker 3: And what's happening is that those consumers they're becoming consumers,

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Speaker 3: but they're also experiencing two things that we've had for decades. First,

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Speaker 3: they're getting their first ever computer and it's not a

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Speaker 3: desktop computer and it doesn't have an Apple logo in

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Speaker 3: most cases. The sub one hundred dollars android based smartphone

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Speaker 3: is bringing the computer to the world for the first time.

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Speaker 3: And you know, three months ago, I would have told

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Speaker 3: you you could get a brand new Android based smartphone

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Speaker 3: in India for fifty dollars and that's still true. But

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Speaker 3: now you can get one for twelve dollars. So Geo

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Speaker 3: Digital introduced the Geo barta smartphone, which is a twelve

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Speaker 3: dollars smartphone. It's you know, it's not a fifteen hundred

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Speaker 3: dollars iPhone in terms of its capacity and power, but

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Speaker 3: it works for you know, making digital payments and watching video,

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Speaker 3: which are the two primary things the Indian smartphone user

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Speaker 3: wants to do right now. And in addition to being

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Speaker 3: the first ever computer for these people, it's their first

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Speaker 3: ever Internet access. Again, when China got to this stage,

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Speaker 3: they barely had any personal computers and there was no smartphones.

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Speaker 3: Now India, you know, fifteen year later, fifteen years later,

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Speaker 3: it looks demographically like China. Did you know, It's the

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Speaker 3: biggest country, it's the youngest country, it's got the fastest

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Speaker 3: growing economy. But it's also coming online. When the arc

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Speaker 3: of technology is at a point where you know, the smartphone,

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Speaker 3: the supercomputer in the pocket is somewhat ubiquitous, and India

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Speaker 3: represents the biggest part of that.

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Speaker 4: To add to what Kevin said, there was a survey

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Speaker 4: that was done and it's said that every day three

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Speaker 4: individuals in India are expected to join the group of

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Speaker 4: wealthy in Indians whose net worth will be more than

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Speaker 4: thirty million over the next five years. So every day

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Speaker 4: three people are going to join this networth of more

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Speaker 4: than thirty million. So in India, to Kevin's point, there's

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Speaker 4: a huge retail adoption, mainly because of their use of

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Speaker 4: digital payments, and so India is one of the world's

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Speaker 4: leading digital payments. And in India they have this systematic

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Speaker 4: investment plan. It's similar to a four oh one K

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Speaker 4: in the US, but you can start depositing fixed amounts

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Speaker 4: at a regular interval and in India you can deposit

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Speaker 4: as little as six US dollars per month. And so

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Speaker 4: this plan has really helped a lot of the Indian

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Speaker 4: funds get tons of inflows. And so roughly the estimate

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Speaker 4: is this year nineteen billion of equity inflows are as

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Speaker 4: a result of this fund. And this is the use

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Speaker 4: of technology. Because everyone's getting a smartphone, they're now able

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Speaker 4: to invest more easily, while previously they'd have to go

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Speaker 4: to a bank.

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Speaker 1: So Kevin I did some research for this podcast Believe

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Speaker 1: or Natural, I do research for these and I was

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Speaker 1: listening to these VC guys talk about India and they

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Speaker 1: had said two things that stuck out to me. I

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Speaker 1: want to get your reaction to this, because all this

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Speaker 1: sounds so good. It sounds like an investor's dream, right.

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Speaker 1: He said two things A couple things ready. One is

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Speaker 1: only thirty million credit cards are in the country, so

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Speaker 1: people don't use credit, which it's got to limit how

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Speaker 1: fast an economy can grow. The other thing he said

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Speaker 1: was they tried to set up a Shopify type company

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Speaker 1: there and it failed because there's just no way to

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Speaker 1: get stuff to people quickly like here where there's streets

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Speaker 1: and everything's very much like there's postal service or UPS

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Speaker 1: or FedEx. And so that company that did Shopify actually

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Speaker 1: switched gears and did a courier service that grouped a

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Speaker 1: bunch of couriers together to make the infrastructure first before

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Speaker 1: you could even attempt to shopify. So I guess it

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Speaker 1: did this. What I heard laid a rougher landscape, not

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Speaker 1: quite as tech oriented and not quite as ready.

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Speaker 3: Well, Eric, this is the secret sauce of the India story,

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Speaker 3: and to be frank with you. You know, I've been

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Speaker 3: investing in emerging market internet companies that they started again,

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Speaker 3: mainly in China where this all started as well. And

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Speaker 3: actually the things that you've pointed out are part of

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Speaker 3: what I think are the upsides beyond the expectations. The

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Speaker 3: credit market, as you mentioned, is very very small, and

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Speaker 3: the you know, very few people had a bank account,

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Speaker 3: and even to go a step further, you know, almost

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Speaker 3: nobody had a government identification card fifteen years ago, and

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Speaker 3: so it's hard to modernize your economy if no has

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Speaker 3: a digital payments form and nobody has an identification But

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Speaker 3: this is this is going to change, and it's already changing,

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Speaker 3: and it's because of the digital public infrastructure they've built,

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Speaker 3: which again is the secret sauce, the so called India stack.

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Speaker 3: And what I believe is that that growth of consumer

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Speaker 3: credit is actually going to happen. It's not going to

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Speaker 3: happen with traditional credit cards and traditional banks, and it's

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Speaker 3: going to happen with digital providers. And what's exciting about

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Speaker 3: that is if and these are you know, numbers I've

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Speaker 3: seen from economists that have studied this closely, but if

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Speaker 3: China's or rather if India is able to develop its

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Speaker 3: consumer credit market to look more like a you know,

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Speaker 3: developed world, it could add two or three full percentage

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Speaker 3: points to the country's growth rate. And that's one thing

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Speaker 3: I think that you know, I think it's quite possible

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Speaker 3: that the growth hasmates for India are understated because of

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Speaker 3: the power of this digital platform they've built for the

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Speaker 3: country and the potential introduction of consumer credit. Now to

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Speaker 3: your second point about logistical challenges, Yes, this is you know,

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Speaker 3: one of the things that I saw seventeen years ago

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Speaker 3: when I got you know, focused on emerging markets was

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Speaker 3: that China and India were actually pretty close. China was

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Speaker 3: a little bit ahead of India, but not very far.

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Speaker 3: And but what you can see was China was building

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Speaker 3: the world's greatest infrastructure to create products and get them

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Speaker 3: to the water and onto a boat. And they've got

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Speaker 3: the world's best infrastructure and India has lagged in that

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Speaker 3: and that certainly includes higher logistics costs. And I think

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Speaker 3: the reality is that the Indian e commerce market is

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Speaker 3: going to look different than the other you know, e

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Speaker 3: commerce markets out there, and it's going to be hyper localized.

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Speaker 3: So if you think about, you know, where is commerce

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Speaker 3: happening now in India of you know, consumer spending happens,

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Speaker 3: you know, retail spending at the thirteen million mom and

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Speaker 3: pop Karana stores, which are like you know, Bodega's with

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Speaker 3: a couple hundred items. And while you know, more formal

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Speaker 3: retail has gone to India, it hasn't really you know,

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Speaker 3: taken much share. So ninety percent is still in these

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Speaker 3: mom and pop stores. And what's what's already happening is

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Speaker 3: you're going to see a hyper localized e commerce market

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Speaker 3: where rather than replace the mom and pop stores with

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Speaker 3: a you know, first a Target store, then an Amazon,

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Speaker 3: they're going to leap frog. And indeed, those mom and

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Speaker 3: pops are going to be an important part of the

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Speaker 3: e commerce story in India. And that's again already happening,

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Speaker 3: and they're getting digitized.

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Speaker 2: So how do you build a portfolio to capture what

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Speaker 2: you're this growth opportunity that you're describing Kevin Well, you know, as.

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Speaker 3: Has been my long conviction that if you're going to

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Speaker 3: invest in emerging markets, you want to invest in the

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Speaker 3: consumer story. But what makes that consumer story even more

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Speaker 3: exciting in emerging markets in India is that it's they're

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Speaker 3: leapfrogging the bank account, the credit card and going straight

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Speaker 3: to mobile phone based money. They're leapfrogging you know, all

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Speaker 3: of those that consumption infrastructure we take for granted. And

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Speaker 3: and so the internet companies have been the best way

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Speaker 3: to invest in the United States, They've been the best

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Speaker 3: way to invest in China, and I am quite confident

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Speaker 3: they will be the best way to invest in in India.

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Speaker 3: That you know, the expectations are that India's economy will

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Speaker 3: you know, nearly double by the end of the decade,

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Speaker 3: but the internet economy is going to grow five hundred

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Speaker 3: percent in that period. So I think that it's you know,

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Speaker 3: just as we've seen all over the world, the internet

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Speaker 3: companies lead the way and growth. And one of the

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Speaker 3: other advantages in emerging markets in India in particular, is

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Speaker 3: that if you look at, you know, the existing market

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Speaker 3: cap and where are the companies, you have companies like

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Speaker 3: Adannie and these large family controlled conglomerates that may be

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Speaker 3: somewhat opaque well with the internet companies. And this isn't

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Speaker 3: just in India, this is in Brazil and everywhere else.

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Speaker 3: That basically the founders are going to the best colleges

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Speaker 3: of the world, and then they're working for Google or

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Speaker 3: Microsoft or Apple or whoever, and then they get their

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Speaker 3: MBAs at the best colleges in the world, and then

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Speaker 3: they start these companies and they're clean. They start them

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Speaker 3: from scratch. They're funded by US or local institutions. And

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Speaker 3: so the capital formation process of the internet companies, I

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Speaker 3: think lends to better corporate governance in a part of

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Speaker 3: the world where that's one of your biggest problems. And

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Speaker 3: the other and important thing I would say is, you know,

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Speaker 3: when I got involved with China fifteen years ago, the

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Speaker 3: first question I had for our portfolio managers was get,

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Speaker 3: you know, give me a list of all the companies

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Speaker 3: in the China et Because when I was first asked

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Speaker 3: to help people invest in China, I assumed that we

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Speaker 3: would buy the FXI, which was the only Chinese ETF

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Speaker 3: on the planet. And I was horrified when I saw

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Speaker 3: that the holdings of the FXI were eighty percent government

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Speaker 3: owned banks and oil companies. And so if you look

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Speaker 3: back now and say, okay, yes, you know, looking out

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Speaker 3: from two thousand and five, say oh, yes, it looks

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Speaker 3: like China is going to grow a lot.

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Speaker 2: And it did.

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Speaker 3: It's economy grew, you know, more than four hundred percent.

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Speaker 3: But if you bought the FXI, you lost half your money.

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Speaker 3: So now if we take the India story, we say, okay,

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Speaker 3: India looks like it's going to grow it. You know,

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Speaker 3: everything looks good. It's populations young, it's economies growing fast,

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Speaker 3: and those things are all true. But if you look

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Speaker 3: at the India Index, the broad indexes, the MSCI, the

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Speaker 3: nifty to fifty, they're not as bad as the China ETF.

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Speaker 3: They're about seven percent stat owned enterprises. These are again

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Speaker 3: government owned banks and oil companies. China has kept their

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Speaker 3: SOEs more, you know, relevant India has let their SOEs,

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Speaker 3: the state on enterprises get eaten by capitalism or acquired

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Speaker 3: and so forth. So it's only about seven percent of

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Speaker 3: the India Index. But another problem is that their biggest companies,

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Speaker 3: the Infosys, Tata, these companies that are about twenty percent

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Speaker 3: of the index and the largest holdings, they're not really

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Speaker 3: you know, capturing the India growth story. They get almost

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Speaker 3: one hundred percent of their revenue from the Fortune five hundred,

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Speaker 3: you know, doing outsourcing for US companies. So if you

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Speaker 3: take that twenty percent and the seven percent, SOEs, Yes,

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Speaker 3: India is going to grow a lot, but I think

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Speaker 3: if you really want to capture the growth, there's a

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Speaker 3: better way to do it than just to buy the

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Speaker 3: traditional broad index that you know is usually the problem

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Speaker 3: in emerging markets.

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Speaker 1: Yeah, let's let's jump into that real quick, because most

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Speaker 1: people probably get their India through in Emerging markets ETF. Right,

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Speaker 1: So IMG and VWO are very popular India seventeen percent

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Speaker 1: waiting in IMG, so that's a good chunk. Now your

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Speaker 1: fund I NQQ has almost no overlap with the stocks

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Speaker 1: in IMG, So I definitely agree that. It just seems

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Speaker 1: like if you are going to go, you have a

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Speaker 1: differentiated exposure, probably more volatile than a straight India ETF.

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Speaker 1: But what's the problem. I guess you're going to probably

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Speaker 1: be a little bit redundant. But do you think people

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Speaker 1: should add on to their Emerging markets ETF with I

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Speaker 1: NQQ or don't even buy an emerging markets ETF and

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Speaker 1: go pick just tech versions of these countries.

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Speaker 3: You know, the biggest problem in emerging markets is the

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Speaker 3: index itself. I mean, everybody looks at the MSCI index

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Speaker 3: and they and they use that as their barometer of

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Speaker 3: you know, whether or not you can make money in

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Speaker 3: emerging markets, and they look at that to reference valuations,

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Speaker 3: and it's a big problem. I think it's the biggest

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Speaker 3: value trap in the world because the you know, the

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Speaker 3: pe looks really low. But if you look underneath the

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Speaker 3: hood and you see the Agricultural Bank of China and

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Speaker 3: Petro Bra, you know, these government owned businesses that aren't

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Speaker 3: on your side, I think it becomes clear that you

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Speaker 3: don't you know, you know, you're not going to optimize

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Speaker 3: your returns by buying the broad traditional index, and you

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Speaker 3: have to get more targeted. That could be as easy

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Speaker 3: as leaving out the ses. There's a large etf that is,

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Speaker 3: you know, merging markets without state owned enterprises. But I

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Speaker 3: think that the real you know, the tip of the

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Speaker 3: sphere of this, and you know, implicit in the word

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Speaker 3: emerging is some sort of growth. And I can tell

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Speaker 3: you with great conviction that where the growth is in

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Speaker 3: India and in other emerging markets is in smartphones, in

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Speaker 3: the internet economy. And again it's this leap frogging effect

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Speaker 3: that it's so powerful, and it's that leapfrogging the bank

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Speaker 3: account and credit card, that first step that's the most

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Speaker 3: powerful and important.

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Speaker 1: Okay, all that said, you know what kind of valuations

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Speaker 1: are we looking at to buy this? Right? So the

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Speaker 1: S and P has a price to earnings ratio of

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Speaker 1: about twenty five? What's India tech? What's I in QQ?

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Speaker 1: And it is the high valuation, which I'm guessing it

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Speaker 1: has a problem or is it something you should watch

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Speaker 1: out for?

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Speaker 3: Sure? Well, valuation, of course is quite important. And when

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Speaker 3: I look at valuation, I don't care about the PE ratio.

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Speaker 3: I care about the peg ratio. The PE without the

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Speaker 3: growth rate doesn't mean anything to me because I'm buying

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Speaker 3: the future. So I want to know what the future

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Speaker 3: earnings look like, not the current or past. And you know,

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Speaker 3: the one thing about India is because it looks so good.

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Speaker 3: I mean, as mentioned the fundamental case, the biggest population,

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Speaker 3: the youngest population, the fastest growing economy, a middle class

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Speaker 3: that's exploding, the fastest growing e commerce market.

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Speaker 2: A.

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Speaker 3: Government that in a you know, very troubled geopolitical world

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Speaker 3: is in this very tranquil relative spot and you know,

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Speaker 3: not part of the China tensions or the Russian tensions.

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Speaker 3: And the valuations reflect this. I mean, you pay a

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Speaker 3: high price for a cheery consensus and there's lots of

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Speaker 3: people saying, yes, India has a bright future. So when

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Speaker 3: you look at the broad Index, the valuations are amongst

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Speaker 3: the highest in the world on a relative basis. And

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Speaker 3: you know, Burton likes to use the the Schiller cape ratios,

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Speaker 3: and I know that on his chart it's always the

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Speaker 3: US first, India second in terms of valuations. And another

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Speaker 3: thing that's happening is, as Rebecca mentioned, is there's a

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Speaker 3: lot of money getting funneled into the index funds, into

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Speaker 3: the ETFs. The government program is funneling a lot of

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Speaker 3: money into that relatively narrow index. They're using the nifty

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Speaker 3: to fifty, not the MSCI, which is what the US

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Speaker 3: largest ETF tracks. And so the valuations of the broad

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Speaker 3: index are high, and the pe is you know, twenty

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Speaker 3: one or twenty two. The earnings growth rate might be,

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Speaker 3: you know, eleven percent, So you've got a PEG ratio

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Speaker 3: of two ish or or higher. Actually, because they're actually

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Speaker 3: on a revenue growth basis, the PEG ratio for the

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Speaker 3: India broad market is about.

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Speaker 4: Three to three and a half.

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Speaker 3: And when I look at the internet companies, the PEG

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Speaker 3: ratio is about one to one and a half. And

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Speaker 3: so and I think that perhaps the reason that the

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Speaker 3: valuations are more reasonable is it doesn't have that forced buy.

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Speaker 3: You don't have all the you know, all the flows

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Speaker 3: that are going to the ETF that are buying that

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Speaker 3: narrow list of stocks. And as you pointed out, most

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Speaker 3: of the Internet companies are not in the index, which

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Speaker 3: has been a problem in a lot of emerging markets.

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Speaker 3: And that's another problem with Emerging Market Index is they

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Speaker 3: don't seem to be paying attention to the Internet companies

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Speaker 3: because a lot of them end up listing in the

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Speaker 3: United States or you know, domiciling themselves outside of their

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Speaker 3: markets where they're doing their business.

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Speaker 2: Okay, Kevin, I've got one more question for you. It's

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Speaker 2: one that we ask everybody on trillions. What is your

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Speaker 2: favorite ETF ticker other than your own?

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Speaker 1: Oh geez, I know what he's gonna say, q q

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Speaker 1: q Q. I know it, I know it, I know it,

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Speaker 1: easy way out. But still, honestly, the Cues is a

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Speaker 1: powerhouse and a juggernaut. You're actually smart to use the

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Speaker 1: cues and your tickers in my opinion, given how famous

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Speaker 1: and awesome that the cues are. But I had a

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Speaker 1: feeling you'd guess that you'd guess that. I don't know

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Speaker 1: I was right.

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Speaker 3: No one's ever asked me that before, but that just

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Speaker 3: popped in my head.

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Speaker 2: Good Kevin, Rebecca, thanks for joining us on Trillions. Thank you,

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Speaker 2: thank you, Thanks for listening to Trillions until next time.

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Speaker 2: You can find us on the Bloomberg Terminal, Bloomberg dot com,

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00:23:14,600 --> 00:23:18,160
Speaker 2: Apple Podcasts, Spotify, and wherever else you'd like to listen.

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00:23:18,680 --> 00:23:21,359
Speaker 2: We'd love to hear from you. I'm at Joel Weber Show.

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Speaker 2: He's at Eric Balchunas. This episode of Trillions was produced

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Speaker 2: by Magnus Hendrickson. Bye