How to Take a Plunge in Bombay

By Daniel Eisenberg

Is India the world's next hot market? When money managers look at the country's vast pool of young, English-speaking techies, they're tempted to answer yes. But when they examine its poverty, faulty infrastructure and onerous bureaucracy, they have second thoughts. Investors also fret about the handcuffs that India's government sometimes slaps on foreign firms by limiting how much of an Indian company they can own. That means big multinationals can't help nurture local firms as much as they might like. But now that India's seemingly stable government is making privatization a priority and encouraging new flows of venture capital, investors seem more willing to invest. In the past year, Bombay's benchmark stock market index soared nearly 100%--to a record high. India, says Krishnamurthy Narayanan, managing partner at Trident Investment Management, could become "the services hub for the rest of Asia."

The easiest way to get a piece of the action in the Indian stock market is via an India-focused mutual fund. The India Fund, managed by Advantage Advisers, and Eaton Vance Greater India A have had returns north of 80% in the past year. Broader funds are also benefiting from India's market rocket: Lexington Worldwide Emerging Markets, which has 15% of its assets invested in India, has gained 165% in the past 12 months. Oppenheimer Developing Markets A is also a standout, owing partly to India.

For high rollers, a riskier--but certainly more active--way to get into the market is to try to pick particular Indian winners. Some of the country's most explosive stocks trade in the U.S. as American depository receipts, listed on the NASDAQ and N.Y.S.E. In the past year, ADR shares of Infosys have skyrocketed from 17 to 291, while Satyam Infoway (known as "the AOL of India") has soared from 7 to 83. More than 10 other companies are expected to make their debut this year, including portal Rediff.com Bill Gates' outsourcing partner Wipro and telecom players VSNL and MTNL.

--By Daniel Eisenberg