Speaker 1: Welcome Chrillion's I'm Joel Webber and I'm Eric belchunis Eric.
Speaker 2: There's a country that just hosted the G twenty and
Speaker 2: it's been in a lot of the headlines this year,
Speaker 2: and so I felt like it was a good time
Speaker 2: for us to talk about India.
Speaker 3: Yeah.
Speaker 1: In fact, the ETFs India ETFs are doing very well.
Speaker 1: They've taken in about two billion, that's you know, something
Speaker 1: around twenty twenty five percent organic growth. So a lot
Speaker 1: of international has kind of cooled off this year, but
Speaker 1: India is still pretty hot.
Speaker 2: You know.
Speaker 1: This is why it's scraping in ETF analyst troll. You
Speaker 1: get to go everywhere. And I've been to India a
Speaker 1: few times in terms of like focusing on it, writing
Speaker 1: about it. And when I think of India, I think
Speaker 1: of a couple things. First, you hear they've got a
Speaker 1: really young population, like half the country of one point
Speaker 1: like four billion people is under the age of twenty five.
Speaker 1: They're pretty tech savvy. Their leader Modi is pretty business oriented,
Speaker 1: and they've got a lot of consumers. This is sort
Speaker 1: of the story you hear. And one thing I always
Speaker 1: learn about India is Jeff Gunlock, the famous bond manager
Speaker 1: said in twenty fifteen, I recommend buying India and then
Speaker 1: not looking at your statement for twenty five years. So
Speaker 1: I went and looked. He said that about eight years ago.
Speaker 1: India's up eighty six percent since then. Now the US
Speaker 1: is up more. But you're doing pretty good, Joel. But
Speaker 1: there is a lot of volatility. India can have a
Speaker 1: really bad year or a bad stretch as an emerging
Speaker 1: market country. So it's just interesting to you know, all
Speaker 1: these things are available to you via ETFs, and there's
Speaker 1: about a dozen India ats. Since I think it's a
Speaker 1: good time to revisit India.
Speaker 2: And joining us. On this episode, we're going to have
Speaker 2: Kevin Carter of i n QQ, which is the India
Speaker 2: Internet and e Commerce ETF. He's with EMQQ Global, as
Speaker 2: well as Rebecca Sen, an ETF analyst with Bloomberg Intelligence,
Speaker 2: this time on trillions revisiting India. Kevin, Rebecca wocome tow trillions.
Speaker 4: Thank you, Thank you for having us.
Speaker 2: Okay, Rebecca. Eric mainly focuses on the US and you
Speaker 2: focus on Asia and some internationals. So I just want
Speaker 2: to start with you give me a context of like
Speaker 2: what India and ETFs look like.
Speaker 4: So India's having a milestone moment where they hosted their
Speaker 4: first Average twenty summit and they're showing that they're really
Speaker 4: a clear leader for Asian investors. India is really taking
Speaker 4: away a lot of the flows from China at the moment.
Speaker 4: International companies are seeking supply chain diversification to India, with
Speaker 4: Apple supplier Fox Con building plants in India. iPhone is
Speaker 4: shifting some of their plants to India away from China,
Speaker 4: and a few interesting stats about India is that more
Speaker 4: than half of their population is under the age of thirty.
Speaker 4: They have the largest youth unemployment rate in the world,
Speaker 4: but they're also the fastest growing large economy. They rank
Speaker 4: third by highest number of billionaires, but on a per
Speaker 4: capital income they ranked tenth, so to put this into perspective,
Speaker 4: the US GDP per capital is seventy six thousand, while
Speaker 4: India is only two point three thousand, so that's a
Speaker 4: huge difference. Mainland China, for instance, is twelve thousand, seven hundred,
Speaker 4: Japan is forty three thousand. So India is growing at
Speaker 4: very rapid pace. Their wealth is growing roughly twelve percent
Speaker 4: annually and from a performance standpoint MSCI. Most of the
Speaker 4: Indian induses have performed roughly ten percent this year, and
Speaker 4: from a funds perspective, India is one of the cheapest
Speaker 4: region by management fees, so on average they only have
Speaker 4: twenty eight basis points the average management fee on their products,
Speaker 4: and for the US it's roughly fifty five basis points.
Speaker 4: Hong Kong is ninety five basis points, Taiwan is seventy
Speaker 4: five basis points. So a lot of people are looking
Speaker 4: to India right now because not only is it performing well,
Speaker 4: but it's also a very cheap area to invest in too.
Speaker 2: Okay, Kevin, I want to better understand something though, because
Speaker 2: earlier this year, short seller Hindenburg Research pretty much shook
Speaker 2: the world when he shorted a billionaire Indian billionaire a
Speaker 2: Gautam Adanni. So here we are in the aftermath of that. Yes,
Speaker 2: there's some reasons to be bullish on on India. I
Speaker 2: think the fact that the new iPhone is coming directly
Speaker 2: from Fox con factories in India in addition to China,
Speaker 2: is extremely noteworthy. So talk to us about why iron
Speaker 2: QQ is a good idea for you.
Speaker 3: Well, I think that you know when you look at
Speaker 3: emerging markets. You know, the thing that's emerging are the people.
Speaker 3: You've got six and a half billion people and they're
Speaker 3: moving on up and they want stuff. They want more
Speaker 3: and better food, better clothing, appliances, They want to take vacations,
Speaker 3: go to boom we get automobiles or some other motorized vehicles,
Speaker 3: and they want their kids to go to college. And
Speaker 3: so that's that's the story, and that's been the story
Speaker 3: and that'll continue to be the story. And India right
Speaker 3: now is not just the most exciting emerging market today,
Speaker 3: but it's kind of like the perfect emerging market. And
Speaker 3: the reason is that and we saw this in China.
Speaker 3: I mean, this is basically like China fifteen or seventeen
Speaker 3: years ago when I first got involved with the emerging markets.
Speaker 3: And what's happening is that those consumers they're becoming consumers,
Speaker 3: but they're also experiencing two things that we've had for decades. First,
Speaker 3: they're getting their first ever computer and it's not a
Speaker 3: desktop computer and it doesn't have an Apple logo in
Speaker 3: most cases. The sub one hundred dollars android based smartphone
Speaker 3: is bringing the computer to the world for the first time.
Speaker 3: And you know, three months ago, I would have told
Speaker 3: you you could get a brand new Android based smartphone
Speaker 3: in India for fifty dollars and that's still true. But
Speaker 3: now you can get one for twelve dollars. So Geo
Speaker 3: Digital introduced the Geo barta smartphone, which is a twelve
Speaker 3: dollars smartphone. It's you know, it's not a fifteen hundred
Speaker 3: dollars iPhone in terms of its capacity and power, but
Speaker 3: it works for you know, making digital payments and watching video,
Speaker 3: which are the two primary things the Indian smartphone user
Speaker 3: wants to do right now. And in addition to being
Speaker 3: the first ever computer for these people, it's their first
Speaker 3: ever Internet access. Again, when China got to this stage,
Speaker 3: they barely had any personal computers and there was no smartphones.
Speaker 3: Now India, you know, fifteen year later, fifteen years later,
Speaker 3: it looks demographically like China. Did you know, It's the
Speaker 3: biggest country, it's the youngest country, it's got the fastest
Speaker 3: growing economy. But it's also coming online. When the arc
Speaker 3: of technology is at a point where you know, the smartphone,
Speaker 3: the supercomputer in the pocket is somewhat ubiquitous, and India
Speaker 3: represents the biggest part of that.
Speaker 4: To add to what Kevin said, there was a survey
Speaker 4: that was done and it's said that every day three
Speaker 4: individuals in India are expected to join the group of
Speaker 4: wealthy in Indians whose net worth will be more than
Speaker 4: thirty million over the next five years. So every day
Speaker 4: three people are going to join this networth of more
Speaker 4: than thirty million. So in India, to Kevin's point, there's
Speaker 4: a huge retail adoption, mainly because of their use of
Speaker 4: digital payments, and so India is one of the world's
Speaker 4: leading digital payments. And in India they have this systematic
Speaker 4: investment plan. It's similar to a four oh one K
Speaker 4: in the US, but you can start depositing fixed amounts
Speaker 4: at a regular interval and in India you can deposit
Speaker 4: as little as six US dollars per month. And so
Speaker 4: this plan has really helped a lot of the Indian
Speaker 4: funds get tons of inflows. And so roughly the estimate
Speaker 4: is this year nineteen billion of equity inflows are as
Speaker 4: a result of this fund. And this is the use
Speaker 4: of technology. Because everyone's getting a smartphone, they're now able
Speaker 4: to invest more easily, while previously they'd have to go
Speaker 4: to a bank.
Speaker 1: So Kevin I did some research for this podcast Believe
Speaker 1: or Natural, I do research for these and I was
Speaker 1: listening to these VC guys talk about India and they
Speaker 1: had said two things that stuck out to me. I
Speaker 1: want to get your reaction to this, because all this
Speaker 1: sounds so good. It sounds like an investor's dream, right.
Speaker 1: He said two things A couple things ready. One is
Speaker 1: only thirty million credit cards are in the country, so
Speaker 1: people don't use credit, which it's got to limit how
Speaker 1: fast an economy can grow. The other thing he said
Speaker 1: was they tried to set up a Shopify type company
Speaker 1: there and it failed because there's just no way to
Speaker 1: get stuff to people quickly like here where there's streets
Speaker 1: and everything's very much like there's postal service or UPS
Speaker 1: or FedEx. And so that company that did Shopify actually
Speaker 1: switched gears and did a courier service that grouped a
Speaker 1: bunch of couriers together to make the infrastructure first before
Speaker 1: you could even attempt to shopify. So I guess it
Speaker 1: did this. What I heard laid a rougher landscape, not
Speaker 1: quite as tech oriented and not quite as ready.
Speaker 3: Well, Eric, this is the secret sauce of the India story,
Speaker 3: and to be frank with you. You know, I've been
Speaker 3: investing in emerging market internet companies that they started again,
Speaker 3: mainly in China where this all started as well. And
Speaker 3: actually the things that you've pointed out are part of
Speaker 3: what I think are the upsides beyond the expectations. The
Speaker 3: credit market, as you mentioned, is very very small, and
Speaker 3: the you know, very few people had a bank account,
Speaker 3: and even to go a step further, you know, almost
Speaker 3: nobody had a government identification card fifteen years ago, and
Speaker 3: so it's hard to modernize your economy if no has
Speaker 3: a digital payments form and nobody has an identification But
Speaker 3: this is this is going to change, and it's already changing,
Speaker 3: and it's because of the digital public infrastructure they've built,
Speaker 3: which again is the secret sauce, the so called India stack.
Speaker 3: And what I believe is that that growth of consumer
Speaker 3: credit is actually going to happen. It's not going to
Speaker 3: happen with traditional credit cards and traditional banks, and it's
Speaker 3: going to happen with digital providers. And what's exciting about
Speaker 3: that is if and these are you know, numbers I've
Speaker 3: seen from economists that have studied this closely, but if
Speaker 3: China's or rather if India is able to develop its
Speaker 3: consumer credit market to look more like a you know,
Speaker 3: developed world, it could add two or three full percentage
Speaker 3: points to the country's growth rate. And that's one thing
Speaker 3: I think that you know, I think it's quite possible
Speaker 3: that the growth hasmates for India are understated because of
Speaker 3: the power of this digital platform they've built for the
Speaker 3: country and the potential introduction of consumer credit. Now to
Speaker 3: your second point about logistical challenges, Yes, this is you know,
Speaker 3: one of the things that I saw seventeen years ago
Speaker 3: when I got you know, focused on emerging markets was
Speaker 3: that China and India were actually pretty close. China was
Speaker 3: a little bit ahead of India, but not very far.
Speaker 3: And but what you can see was China was building
Speaker 3: the world's greatest infrastructure to create products and get them
Speaker 3: to the water and onto a boat. And they've got
Speaker 3: the world's best infrastructure and India has lagged in that
Speaker 3: and that certainly includes higher logistics costs. And I think
Speaker 3: the reality is that the Indian e commerce market is
Speaker 3: going to look different than the other you know, e
Speaker 3: commerce markets out there, and it's going to be hyper localized.
Speaker 3: So if you think about, you know, where is commerce
Speaker 3: happening now in India of you know, consumer spending happens,
Speaker 3: you know, retail spending at the thirteen million mom and
Speaker 3: pop Karana stores, which are like you know, Bodega's with
Speaker 3: a couple hundred items. And while you know, more formal
Speaker 3: retail has gone to India, it hasn't really you know,
Speaker 3: taken much share. So ninety percent is still in these
Speaker 3: mom and pop stores. And what's what's already happening is
Speaker 3: you're going to see a hyper localized e commerce market
Speaker 3: where rather than replace the mom and pop stores with
Speaker 3: a you know, first a Target store, then an Amazon,
Speaker 3: they're going to leap frog. And indeed, those mom and
Speaker 3: pops are going to be an important part of the
Speaker 3: e commerce story in India. And that's again already happening,
Speaker 3: and they're getting digitized.
Speaker 2: So how do you build a portfolio to capture what
Speaker 2: you're this growth opportunity that you're describing Kevin Well, you know, as.
Speaker 3: Has been my long conviction that if you're going to
Speaker 3: invest in emerging markets, you want to invest in the
Speaker 3: consumer story. But what makes that consumer story even more
Speaker 3: exciting in emerging markets in India is that it's they're
Speaker 3: leapfrogging the bank account, the credit card and going straight
Speaker 3: to mobile phone based money. They're leapfrogging you know, all
Speaker 3: of those that consumption infrastructure we take for granted. And
Speaker 3: and so the internet companies have been the best way
Speaker 3: to invest in the United States, They've been the best
Speaker 3: way to invest in China, and I am quite confident
Speaker 3: they will be the best way to invest in in India.
Speaker 3: That you know, the expectations are that India's economy will
Speaker 3: you know, nearly double by the end of the decade,
Speaker 3: but the internet economy is going to grow five hundred
Speaker 3: percent in that period. So I think that it's you know,
Speaker 3: just as we've seen all over the world, the internet
Speaker 3: companies lead the way and growth. And one of the
Speaker 3: other advantages in emerging markets in India in particular, is
Speaker 3: that if you look at, you know, the existing market
Speaker 3: cap and where are the companies, you have companies like
Speaker 3: Adannie and these large family controlled conglomerates that may be
Speaker 3: somewhat opaque well with the internet companies. And this isn't
Speaker 3: just in India, this is in Brazil and everywhere else.
Speaker 3: That basically the founders are going to the best colleges
Speaker 3: of the world, and then they're working for Google or
Speaker 3: Microsoft or Apple or whoever, and then they get their
Speaker 3: MBAs at the best colleges in the world, and then
Speaker 3: they start these companies and they're clean. They start them
Speaker 3: from scratch. They're funded by US or local institutions. And
Speaker 3: so the capital formation process of the internet companies, I
Speaker 3: think lends to better corporate governance in a part of
Speaker 3: the world where that's one of your biggest problems. And
Speaker 3: the other and important thing I would say is, you know,
Speaker 3: when I got involved with China fifteen years ago, the
Speaker 3: first question I had for our portfolio managers was get,
Speaker 3: you know, give me a list of all the companies
Speaker 3: in the China et Because when I was first asked
Speaker 3: to help people invest in China, I assumed that we
Speaker 3: would buy the FXI, which was the only Chinese ETF
Speaker 3: on the planet. And I was horrified when I saw
Speaker 3: that the holdings of the FXI were eighty percent government
Speaker 3: owned banks and oil companies. And so if you look
Speaker 3: back now and say, okay, yes, you know, looking out
Speaker 3: from two thousand and five, say oh, yes, it looks
Speaker 3: like China is going to grow a lot.
Speaker 2: And it did.
Speaker 3: It's economy grew, you know, more than four hundred percent.
Speaker 3: But if you bought the FXI, you lost half your money.
Speaker 3: So now if we take the India story, we say, okay,
Speaker 3: India looks like it's going to grow it. You know,
Speaker 3: everything looks good. It's populations young, it's economies growing fast,
Speaker 3: and those things are all true. But if you look
Speaker 3: at the India Index, the broad indexes, the MSCI, the
Speaker 3: nifty to fifty, they're not as bad as the China ETF.
Speaker 3: They're about seven percent stat owned enterprises. These are again
Speaker 3: government owned banks and oil companies. China has kept their
Speaker 3: SOEs more, you know, relevant India has let their SOEs,
Speaker 3: the state on enterprises get eaten by capitalism or acquired
Speaker 3: and so forth. So it's only about seven percent of
Speaker 3: the India Index. But another problem is that their biggest companies,
Speaker 3: the Infosys, Tata, these companies that are about twenty percent
Speaker 3: of the index and the largest holdings, they're not really
Speaker 3: you know, capturing the India growth story. They get almost
Speaker 3: one hundred percent of their revenue from the Fortune five hundred,
Speaker 3: you know, doing outsourcing for US companies. So if you
Speaker 3: take that twenty percent and the seven percent, SOEs, Yes,
Speaker 3: India is going to grow a lot, but I think
Speaker 3: if you really want to capture the growth, there's a
Speaker 3: better way to do it than just to buy the
Speaker 3: traditional broad index that you know is usually the problem
Speaker 3: in emerging markets.
Speaker 1: Yeah, let's let's jump into that real quick, because most
Speaker 1: people probably get their India through in Emerging markets ETF. Right,
Speaker 1: So IMG and VWO are very popular India seventeen percent
Speaker 1: waiting in IMG, so that's a good chunk. Now your
Speaker 1: fund I NQQ has almost no overlap with the stocks
Speaker 1: in IMG, So I definitely agree that. It just seems
Speaker 1: like if you are going to go, you have a
Speaker 1: differentiated exposure, probably more volatile than a straight India ETF.
Speaker 1: But what's the problem. I guess you're going to probably
Speaker 1: be a little bit redundant. But do you think people
Speaker 1: should add on to their Emerging markets ETF with I
Speaker 1: NQQ or don't even buy an emerging markets ETF and
Speaker 1: go pick just tech versions of these countries.
Speaker 3: You know, the biggest problem in emerging markets is the
Speaker 3: index itself. I mean, everybody looks at the MSCI index
Speaker 3: and they and they use that as their barometer of
Speaker 3: you know, whether or not you can make money in
Speaker 3: emerging markets, and they look at that to reference valuations,
Speaker 3: and it's a big problem. I think it's the biggest
Speaker 3: value trap in the world because the you know, the
Speaker 3: pe looks really low. But if you look underneath the
Speaker 3: hood and you see the Agricultural Bank of China and
Speaker 3: Petro Bra, you know, these government owned businesses that aren't
Speaker 3: on your side, I think it becomes clear that you
Speaker 3: don't you know, you know, you're not going to optimize
Speaker 3: your returns by buying the broad traditional index, and you
Speaker 3: have to get more targeted. That could be as easy
Speaker 3: as leaving out the ses. There's a large etf that is,
Speaker 3: you know, merging markets without state owned enterprises. But I
Speaker 3: think that the real you know, the tip of the
Speaker 3: sphere of this, and you know, implicit in the word
Speaker 3: emerging is some sort of growth. And I can tell
Speaker 3: you with great conviction that where the growth is in
Speaker 3: India and in other emerging markets is in smartphones, in
Speaker 3: the internet economy. And again it's this leap frogging effect
Speaker 3: that it's so powerful, and it's that leapfrogging the bank
Speaker 3: account and credit card, that first step that's the most
Speaker 3: powerful and important.
Speaker 1: Okay, all that said, you know what kind of valuations
Speaker 1: are we looking at to buy this? Right? So the
Speaker 1: S and P has a price to earnings ratio of
Speaker 1: about twenty five? What's India tech? What's I in QQ?
Speaker 1: And it is the high valuation, which I'm guessing it
Speaker 1: has a problem or is it something you should watch
Speaker 1: out for?
Speaker 3: Sure? Well, valuation, of course is quite important. And when
Speaker 3: I look at valuation, I don't care about the PE ratio.
Speaker 3: I care about the peg ratio. The PE without the
Speaker 3: growth rate doesn't mean anything to me because I'm buying
Speaker 3: the future. So I want to know what the future
Speaker 3: earnings look like, not the current or past. And you know,
Speaker 3: the one thing about India is because it looks so good.
Speaker 3: I mean, as mentioned the fundamental case, the biggest population,
Speaker 3: the youngest population, the fastest growing economy, a middle class
Speaker 3: that's exploding, the fastest growing e commerce market.
Speaker 2: A.
Speaker 3: Government that in a you know, very troubled geopolitical world
Speaker 3: is in this very tranquil relative spot and you know,
Speaker 3: not part of the China tensions or the Russian tensions.
Speaker 3: And the valuations reflect this. I mean, you pay a
Speaker 3: high price for a cheery consensus and there's lots of
Speaker 3: people saying, yes, India has a bright future. So when
Speaker 3: you look at the broad Index, the valuations are amongst
Speaker 3: the highest in the world on a relative basis. And
Speaker 3: you know, Burton likes to use the the Schiller cape ratios,
Speaker 3: and I know that on his chart it's always the
Speaker 3: US first, India second in terms of valuations. And another
Speaker 3: thing that's happening is, as Rebecca mentioned, is there's a
Speaker 3: lot of money getting funneled into the index funds, into
Speaker 3: the ETFs. The government program is funneling a lot of
Speaker 3: money into that relatively narrow index. They're using the nifty
Speaker 3: to fifty, not the MSCI, which is what the US
Speaker 3: largest ETF tracks. And so the valuations of the broad
Speaker 3: index are high, and the pe is you know, twenty
Speaker 3: one or twenty two. The earnings growth rate might be,
Speaker 3: you know, eleven percent, So you've got a PEG ratio
Speaker 3: of two ish or or higher. Actually, because they're actually
Speaker 3: on a revenue growth basis, the PEG ratio for the
Speaker 3: India broad market is about.
Speaker 4: Three to three and a half.
Speaker 3: And when I look at the internet companies, the PEG
Speaker 3: ratio is about one to one and a half. And
Speaker 3: so and I think that perhaps the reason that the
Speaker 3: valuations are more reasonable is it doesn't have that forced buy.
Speaker 3: You don't have all the you know, all the flows
Speaker 3: that are going to the ETF that are buying that
Speaker 3: narrow list of stocks. And as you pointed out, most
Speaker 3: of the Internet companies are not in the index, which
Speaker 3: has been a problem in a lot of emerging markets.
Speaker 3: And that's another problem with Emerging Market Index is they
Speaker 3: don't seem to be paying attention to the Internet companies
Speaker 3: because a lot of them end up listing in the
Speaker 3: United States or you know, domiciling themselves outside of their
Speaker 3: markets where they're doing their business.
Speaker 2: Okay, Kevin, I've got one more question for you. It's
Speaker 2: one that we ask everybody on trillions. What is your
Speaker 2: favorite ETF ticker other than your own?
Speaker 1: Oh geez, I know what he's gonna say, q q
Speaker 1: q Q. I know it, I know it, I know it,
Speaker 1: easy way out. But still, honestly, the Cues is a
Speaker 1: powerhouse and a juggernaut. You're actually smart to use the
Speaker 1: cues and your tickers in my opinion, given how famous
Speaker 1: and awesome that the cues are. But I had a
Speaker 1: feeling you'd guess that you'd guess that. I don't know
Speaker 1: I was right.
Speaker 3: No one's ever asked me that before, but that just
Speaker 3: popped in my head.
Speaker 2: Good Kevin, Rebecca, thanks for joining us on Trillions. Thank you,
Speaker 2: thank you, Thanks for listening to Trillions until next time.
Speaker 2: You can find us on the Bloomberg Terminal, Bloomberg dot com,
Speaker 2: Apple Podcasts, Spotify, and wherever else you'd like to listen.
Speaker 2: We'd love to hear from you. I'm at Joel Weber Show.
Speaker 2: He's at Eric Balchunas. This episode of Trillions was produced
Speaker 2: by Magnus Hendrickson. Bye