The Warren Buffett of India

As in early 20th-century America, the Indian stock market is still finding its sea legs. When we were in Mumbai a few weeks ago, I asked a local analyst who are the Warren Buffetts and Peter Lynches of India. He said there really aren’t any. The leading stock market speculators are men of ill repute. They have shady reputations for manipulating markets, just as early U.S. speculators did.

And there are lots of speculators. Optimism prevails. In this, it’s no different from the early U.S. ‘bucket shops’ written about famously by Edwin Lefèvre and others, where the working Joe would gamble on stocks, hoping to get rich.

There are also few dividend payers of any significance in the Indian stock market. A 4% yield is a lot. It makes sense, though, given that India is a rapidly growing market. Reinvesting the money is often a better choice than paying a dividend.

The most frustrating thing is that the market is still mostly closed to U.S. investors. We simply can’t buy the stocks on the Bombay Stock Exchange, for example. There are some that list in the United States and are easy to buy. Beyond specific stocks, the best way to invest in India is through a fund that can own all these stocks that you otherwise can’t buy. I’d expect this to be an up-and-down idea, but over the long haul, such a fund ought to beat U.S. market returns by a solid margin.

Finally, there are indirect plays on what India — and the rest of the emerging markets — need. We are invested in energy and fertilizers, for instance, two things such markets will need in abundance. I’m also looking again at various infrastructure plays — companies building stuff the world needs — here and everywhere.

The Daily Reckoning