As the Asian economy has grown in dimensions and importance, we've been slowly adding the single-country funds specialized in Asian countries to our international funds list. The very first country we added was Japan, and much later China. What we required to be able to present you with the added danger of a fund focused on a single country was a reasonably large and diversified capital market that offered a portfolio manager the opportunity to diversify the portfolio even within a single country. Because the Japanese and Chinese economies grew and new industries blossomed, we thought that test was met. We now think that the Indian economy and capital markets also meet our test. With this dilemma, then, we are adding three India funds to the list: Matthews India, WisdomTree India Earnings (ETF) and PowerShares India (ETF). We may add 1 or 2 other funds to the list over the following few issues.

Why India?... Frequently in the past whenever we spoke about Asia and its rapid growth we cited the twin dynamos powering that growth, China and India. Coupling the two served its purpose, but we now believe the two are accepting separate identities. As we've been listening and reading within the course of the past four to five months, we attended to in conclusion there are differences in the paths that China and India will soon be overtaking the months ahead. Both will undoubtedly be growing rapidly (or intend to) but one is concerned about too-rapid growth (China) while another is aiming at even more quickly growth as time goes by (India).

To sort things out, and to obtain a better feel for the Indian economy and the capital market, we spoke to Sharat Shroff, the portfolio manager of the Matthews India Fund. The initial point that Shroff made is that "a number of the days ahead for India (speaking of growth) may be better than what's been seen over the past two to three years." For many historical perspective, Shroff remarked that India's growth rate acquired after the us government adopted a policy of opening the economy in the first 90's. Since that time, as more reforms were gradually introduced, growth has acquired further. By 1995, India's growth hit the high single-digits range and remained there (on average). Such growth is currently taken while the benchmark.

Shroff emphasized that what makes India's growth distinctive from other emerging countries is that in large part it comes from domestic demand, not from exports or commodities. There's no large-scale overhaul that India needs to undergo, he remarked. What Shroff is driving at is that in the post-recession world China's trade surpluses and the U.S. deficit will need to shrink as they are unsustainable. India faces no such issues.

The next point advanced by Shroff is that the private sector accounts for roughly 80% of India's growth. The significance of that's that in India we are referring to businesses that are oriented toward profits and return on capital. This isn't always the case elsewhere in Asia. Because of the conditions, India offers the investor an opportunity to purchase high quality companies with solid business models.

As for Matthews India, Shroff stated that the fund does certainly not purchase the large cap, world-renowned companies (the Indian blue chips). As Shroff use it, if you compare our portfolio with the benchmark, you will realize that two-thirds of our portfolio is composed of small- and mid-cap stocks. We try to be a bit more forward-looking. What the fund is trying to find are those (smaller) companies that are "participating in the country's growth and have the potential to become among the larger companies two, three or maybe five years from now."

The Indian market...We asked Mr. Shroff, what index one should watch to record the Indian market. He answered that the Sensex is the original index followed. But in recent years, the professional community pays more focus on the S&P CNX Nifty Index.

In terms of valuations, the Indian market, says Shroff, is selling at a price-earnings ratio around 15-16 times and at about three times book value. That is slightly above historical average valuations. Also Shroff pointed out that the Indian market has traditionally been expensive compared to its emerging market peers. The premium has ranged from only 15% to as high as 45%. Today he puts the premium at the reduced end of the range.

There is some justification for the premium, he added. The return on equity for Indian firms is in the 18-20% range, which, as he use it, "is fairly robust." Another reason refers back once again to the interior resources of India's growth so that you get less volatility than you do from a "commodity producer."

That is not to imply that the Indian market isn't volatile. "Even although the economy may be dancing to a unique tune," Shroff warned, "when foreigners were taking out money from all emerging markets in 2008, the Indian market went via a very severe correction. (In fact) within the last few three or four years the Indian market has shown some correlation with the S&P 500." (We discover that recently to possess been true of emerging markets as a whole.)

Shroff considered the issue of volatility a lot more than once. He was preaching to the converted. We're restricting our advice regarding the indien fonds to Venturesome investors only. This is the same policy that people have now been following regarding the pure China funds. The policy is not written in stone, but the entire world economy would need to be functioning closer to normalcy before we'd consider any relaxation.

Following the interview with Shroff, we were a lot more convinced that the single-country India funds belong within our fund list. Not only is India growing rapidly, but we expect to see the emergence of more investment -- worthy companies as opportunities arise. Thinking about the potential, you can appreciate why Asia and the emerging markets, generally speaking, are becoming the center of the investment world's attention.