It ain’t half hot in Mumbai

Elliot Wilson explains how to navigate India’s rigid investment rules and buy into a dazzling growth story

Sweat was pouring off the commodities broker sitting next to me in the sauna of the Taj Mahal Hotel in Mumbai. ‘India is shining,’ he thundered. ‘You must invest in it — everyone in England must. The economy will always go up; it will never come down. We’re on top in information technology, in financial services, in infrastructure.’ Was he just overheating — India’s infrastructure, after all, is indisputably among the worst in Asia — or offering a fair assessment of one of the world’s great emerging economies?

Certainly India’s economy has begun to dazzle: it is on course to grow 9.2 per cent in the year to 31 March, and Goldman Sachs says it could grow by 8 per cent per year until 2020 — a rise as startling as China’s. Mumbai’s Sensex stock market index rose 46.7 per cent last year — compared to the FTSE’s 10.7 per cent — and has returned an average of 22 per cent every year since 1991, almost three times more than the FTSE-100.

But how to invest in this red-hot growth story? India’s capital controls remain rigid. Domestically listed stocks cannot be bought directly by foreign retail investors, so funds remain the best way in. HSBC’s GIF India Equity Fund has gained 151 per cent in the three years to December 2006; UTI’s International IT Fund is up 164 per cent over a similar period. Two JP Morgan funds pit the region’s big emerging economies head-to-head, and India wins: the £390 million India Fund returned 167 per cent over the past three years, while the China Fund returned just 49 per cent.