Investing in India: Book Review

Investing in India

Investing in India by David Merkel, CFA of the Aleph Blog

I learned a lot from this book. India is an amalgam of nations inside one country. It is difficult to generalize about investing in India but there are a few themes to follow.

Most companies in India have a dominant shareholder, or family of shareholders.  As such, though there are some companies like this in the US, the first prism you view any Indian company through is how they treat outside passive minority shareholders, particularly foreign ones.  If they constantly give minority shareholders the short end of the stick, no matter how attractive the investment, avoid them.

Analysis of corporate governance is paramount, because it is very difficult to take a company over in a hostile manner. Assume that the present management will never be changed.  Does the company still look cheap if the value -destroying management team will remain there?

Analyze capital allocation as well.  If management acts like value maximizing businessmen, it could be a good company to invest in.  If not, avoid.

Structure of the Book

Investing in India is a slow ramp up as far as business goes, talking about culture, politics, economy, and financial structure, before really digging into investing.  These are good things to learn about, but the amount of time the book dedicates to making practical investment decisions in India is maybe 25% of the book.

The Main Problem

After you read Investing in India, you will realize that without detailed local knowledge, you don’t stand a chance of investing in public Indian companies directly.  As such, the book is of limited value to most people.  So, though it is a good book, you probably would not benefit from reading it, aside from learning about Indian culture and government.  You would have to build up a lot of knowledge about the Indian families who run public corporations in India — which ones are favorable to outside passive minority investors, and which are not.

Aside from that, they mention the website for the book, but it is just a collection of documents for the companies mentioned in the book.

Summary

India is an unusual country with many challenges.  You will learn a lot about it and its economy reading this book.  When you are done reading this book, you will likely conclude that investing in Indian companies is best left to local experts like the author.  The book gives a good framework, but one embarking upon investing in India will need to develop knowledge of which Indian families treat minority shareholders fairly and who do not.  If you want to, you can buy it here: Investing in India, + Website: A Value Investor’s Guide to the Biggest Untapped Opportunity in the World (Wiley Finance).

Full disclosure: The PR flack asked me if I would like a copy, and I said yes.

If you enter Amazon through my site, and you buy anything, I get a small commission.  This is my main source of blog revenue.  I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip.  Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book.  Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.  Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.  Whether you buy at Amazon directly or enter via my site, your prices don’t change.

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About the Author

David Merkel
David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website RealMoney.com. Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.

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