What we required in order to present you with the added danger of a fund specialized in a single country was a reasonably large and diversified capital market that offered a portfolio manager the ability 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 believe that the Indian economy and capital markets also meet our test. With this issue, then, we're adding three India funds to the list: Matthews India, WisdomTree India Earnings (ETF) and PowerShares India (ETF). We might add a couple of other funds to the list over the next few issues.

Why India?... Frequently before 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 dealing with separate identities. As we've been listening and reading within the course of yesteryear 4 or 5 months, we have come to the conclusion that there are differences in the paths that China and India is going to be taking over the months ahead. Both is going to be growing rapidly (or intend to) but one is concerned about too-rapid growth (China) while another is aiming at even more quickly growth in the foreseeable future (India).

To sort things out, and to get 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 very first point that Shroff made is that "a number of the days ahead for India (speaking of growth) may be a lot better than what's been seen in the last 2 to 3 years." For many historical perspective, Shroff pointed out that India's growth rate found after the us government adopted a policy of opening up the economy in the early 90's. Since then, as more reforms were gradually introduced, growth has found 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 different from other emerging countries is that in large part it arises from domestic demand, not from exports or commodities. There is 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 being that they are unsustainable. India faces no such issues.

The second point advanced by Shroff is that the private sector accounts for roughly 80% of India's growth. The significance of that is that in India we are talking about businesses which are oriented toward profits and return on capital. This is not always the case elsewhere in Asia. Because of the conditions, India supplies the investor a chance to invest in high quality companies with solid business models.

For Matthews India, Shroff said that the fund does definitely not spend money on the large cap, world-renowned companies (the Indian blue chips). As Shroff use it, in the event that you compare our portfolio with the benchmark, you will observe that two-thirds of our portfolio is composed of small- and mid-cap stocks. We try to be much more forward-looking. What the fund is searching for are those (smaller) companies that are "participating in the country's growth and have the potential to become one of the larger companies two, three or possibly five years from now."

The Indian market...We asked Mr. Shroff, what index you need to watch to record the Indian market. He answered that the Sensex is the traditional index followed. But recently, the professional community pays more focus on the S&P CNX Nifty Index.

As for valuations, the Indian market, says Shroff, is selling at a price-earnings ratio of approximately 15-16 times and at about 3 x book value. This 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 as little as 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 quite robust." Another reason refers back once again to the internal sources of India's growth so you get less volatility than you do from the "commodity producer."

That is not saying that the Indian market is not volatile. "Even though the economy might be dancing to its 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) in the last three or four years the Indian market shows some correlation with the S&P 500." (We realize that recently to possess been true of emerging markets as a whole.)

Shroff turned to the problem of volatility significantly more than once. He was preaching to the converted. We're restricting our advice regarding the Indian funds to Venturesome investors only. This is actually the same policy that we have now been following pertaining to the pure China funds. The policy isn't written in stone, but the entire world economy will have to be functioning closer on track before we would consider any relaxation.

Following the interview with Shroff, we were even more convinced that the single-country India funds belong in our fund list. Not just is India growing rapidly, but we expect you'll start to see the emergence of more investment -- worthy companies as opportunities arise. Thinking about the potential, you are able to appreciate why Asia and the emerging markets, in general, have grown to be the middle of the investment world's attention.