My Best Pick 2013

The long shot

It's time to look beyond Indian shores and invest in US gas stocks, which are quoting cheap

Soumik Kar

Although Indian stocks account for only 2.5% of global market value of equity, Indians tend to concentrate their holdings in India. This “home bias”, where people prefer to invest nearer home than abroad, is a universal phenomenon: Americans prefer US stocks, Europeans concentrate their portfolios in European stocks, Japanese concentrate in Japanese stocks and so on. In unfamiliar situations, the predominant emotion is fear. Foreign stocks are less familiar than Indian stocks, hence the home bias. Currently, Indians can invest abroad to the tune of $200,000 every year, but this bias keeps them away from investing in good value stocks globally. Once you break the bias, several new opportunities open up. I have a firm conviction in the future of the US natural gas sector and the US companies available at attractive valuations.

It is not a matter of “if” but “when” natural gas prices will spike in the US. Most commodities have rebounded handsomely from the lows seen in 2008. However, the price of natural gas is down significantly since the highs of 2008. Natural gas was trading at a high of $10.79 in July 2008 and since then it has fallen to a low of $1.89 in April 2012. The drop is because demand is yet to catch up with a relatively fast ramp-up in natural gas supplies in the US.

The increase in supply is due to widespread use of fracking (hydraulic fracturing), the procedure of creating fractures in rocks and rock formations by injecting fluid into cracks to force them further open. The larger fissures allow more oil and gas to flow out of the formation and into the wellbore, from where it can be extracted. Fracking as a technology has changed the US’ fortunes. Some years back it used to be a major importer and now it has the potential to be

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