Trader Talk

The Modi effect: India investors swoon, mull growth plays

Bharatiya Janata Party (BJP) leader Narendra Modi.
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India's stock market closed at another historic high on word that Narendra Modi and his BJP party had won a landslide victory in the national election. It's the first time since 1984 that a single party has won a clear majority in elections.

Not surprisingly, the pro-growth Modi is eliciting swoons from India's investor class. Macquarie Research estimates that India's gross domestic product will improve from 4.7 percent in fiscal year 2013 to 6.5—7.0 percent in the next few years. Meanwhile, they estimate valuations of Indian stocks could expand from 14 times forward earnings to 16 to 17 times.

The Bombay Sensei Index is up 4.9 percent this week and 13.9 percent year-to-date. Sounds frothy? Maybe, but Japan's markets moved up 80 percent following the election of Prime Minister Shinzo Abe.

Modi wins India's election in a landslide

How to play it? Predictably, I've already been asked how to invest in India, and yes, there is an exchange traded fund (ETF) for that. In fact, there are several.

The big players in this space are:

1) the PowerShares India ETF, an index linked to the 50 largest companies in India;

2) the iShares S&P India Nifty Fifty, which invests in many of the same companies at PIN, and

3) The WisdomTree India Earnings Fund which employs a different methodology than the other two, investing only in profitable companies that can be owned by foreign investors.

Most intriguing, however, is the EG Shares India Infrastructure ETF, which consists of 30 companies that represent the infrastructure industry. This may be the one to own, since Modi has made no secret that infrastructure development is critical to his growth plans.

The general idea is to overweight India's industrials and, to some extent, financials as well.

Not everyone believes that some kind of economic revival is around the corner, however. When I visited India in February, the mood was fairly pessimistic, with many business people and even average citizens like cab drivers believing that the entrenched bureaucracy would make true reforms very difficult. Indian corporations are also deeply in debt.

Still, Modi and his party seem to be different. Observers characterize them as more nimble and entrepreneurial that previous governments.


Pisani's market: Tough times for IPOs

1) The initial public offering (IPO) market continues to function, with mixed results. China's largest online beauty products retailer Jumei International Holdings (JMEI) priced 11.1 million shares—more than expected - at $22, above the $19.50 to $21.50 range.

An increase in size and price? We haven't seen a deal increase in size and price since Grubhub went public early in the year. This is the seventh Chinese IPO this year, but on average there has been no follow-through. So the issue is, when can we expect it to happen?

For the answer to that question, you might not want to look to the . Car-pricing comparison website TrueCar priced 7.7 million shares at $9, well below the $12 to $14 range. What happened?

That's about 30 percent less in terms of proceeds than expected. This is another example of a relatively low-margin business, and it's difficult to get a lot of repeat business (how often do you buy a car?)

The jury's still out on whether the IPO market has bottomed. The Renaissance Capital IPO ETF closed at its low for the year yesterday. No surprise there, as half of the 107 IPOs floated this year are still trading below their initial price.

This follows on the successful pricing of customer relationship management firm Zendesk at $9, in the middle of the $8 to $10 price talk. However, they sold 25 percent of that IPO to insiders.

2) Retail earnings: in a word, dismal. More than a third of the way through the earnings season for this sector, and the bad news just keeps piling up. Put simply, the best that can be said about their earnings is that forward-looking trends may be improving.

Yes, it's encouraging that Kohls, Macy's and even Wal-Mart indicated customer traffic improved going into May. And guidance has been relatively stable: Macys and Nordstrom at least reiterated theirs. Cato, Gap and L Brands have also raised guidance. Fossil guided lower.

Yet the actual numbers are terrible. How bad is it?

At the start of the year, RetailMetrics had a consensus estimate that earnings for the 124 companies they track would be up 13.3 percent year-over-year. At the beginning of this week, it was only to be expected to be up —wait for it —1.3 percent.

It gets worse. For the 51 companies that have reported so far, earnings are actually down 3.7 percent year-over-year. Yikes!

--By CNBC's Bob Pisani