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How You Can Participate In India’s Growth

During a recent visit to Japan, India’s new Prime Minister Narendra Modi managed to ink a pact with the country which would see it invest up to 3.5 trillion yen (around US$34 billion) in India over the next five years.

The investments are mainly for development projects which include infrastructure and the building of smart cities. Japan also expressed willingness to provide financial, technical, and operational support to introduce bullet trains in India.

Increased business activity under a new leadership

India’s stock market has been on a roll since Modi and his BJP Party won the country’s general elections in May 2014; the BSB Sensex Index has jumped by around 20% since the start of that month.

Modi, the former Chief Minister of the Guajarat State in India, is renowned for his pro-business leanings and intolerance toward corruption. Investors are hopeful that he can bring forward major reforms in India, a country held back by corruption and lethargic bureaucracy, after seeing how he transformed the state of Gujarat.

Currently, the International Monetary Fund (IMF) feels that India’s potential for growth is stunted because of “supply bottlenecks arising from problems in the regulatory framework for mining, energy, telecommunication and other sectors”.

Thus, the determination Modi has shown to bring in big picture reforms to provide economic growth has resulted in a surge in optimism about the country’s economic future. Notable actions that Modi has made include plans for a multi-billion dollar infrastructure fund which can help push forward major infrastructure developments in the country, such as the building of roads.

Taking advantage of the upcoming reforms in place

With all these talk about Modi and India’s reforms, you might be thinking: “I’m an investor in Singapore, what has this got to do with me?” Well, there are some shares which have substantial operations in India and which might experience strong tailwinds if Modi proves to be a bona fide economic talisman for the country. Let’s take a look at two of them in particular.

1. Religare Health Trust (SGX: RF1U)

Religare Health Trust is Singapore’s first listed business trust with a portfolio comprising of healthcare assets in India. Based on its latest financials for the quarter ended 30 June 2014, the trust’s portfolio is valued at S$857 million (as of 31 March 20014) and comprises 12 clinical establishments, four greenfield clinical establishments, and two hospitals.

Interestingly, Religare Health Trust seems to stand out amongst other healthcare-related trusts in terms of its distribution yield and gearing. For instance, Parkwaylife REIT (SGX: C2PU) and First Real Estate Investment Trust (SGX: AW9U) both have lower distribution yields and higher gearing.

Trust Distribution yield Gearing ratio
Religare Health Trust 8.0% 15.1%
Parkwaylife REIT 4.9% 35.3%
First REIT 7.0% 32.9%

Source: Religare Health Trust’s latest earnings release

If India’s economy starts to pick up, more built-up areas would likely lead to more demand for healthcare services. Furthermore, Religare Health Trust can benefit from an an increase in infrastructure investment since the majority of its clinical establishments are located close to major transportation hubs.

2. Sarine Technologies Ltd (SGX: U77)

Sarine Technologies’ business revolves around diamonds – it develops, manufactures, markets, and sells precision technology products for the processing of rough diamonds and gemstones.

India currently accounts for more than 90% of all manufactured diamonds worldwide. Thus, more than three quarters of Sarine Technologies’ revenue is actually derived from India. Given such huge exposure to the country, any overall improvements in the economy there would likely bode well for Sarine Technologies.

Foolish Summary

Although the future of India’s economic development seems positive, it doesn’t mean that one should just dive in and invest in all companies which operate in the country. Careful thought should still go toward finding the companies which would benefit the most from any possible growth in India.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.