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India is starting to happen, investors.
The world's second most populous nation -- largely ignored for its lackluster growth, rampant poverty, and inadequate infrastructure -- is shaping up to be the next hotbed of international investing.
The Reserve Bank of India cut its rates this morning. Economists were generally expecting a 25 basis-point cut, but they got a heartier 50 basis points instead. After growing its economy at a 6.1% clip in the final quarter of last year -- a two-year low, but clearly ahead of where most developed nations are at this point -- India doesn't want to take any chances.
India has its problems, of course. However, the challenges are different than the restrictive worries that often keep investors of Chinese equities up at night. India isn't threatening to shut down the Internet when the news isn't favorable. If anything, India's Draft National Telecom Policy is taking aggressive steps to broaden broadband access throughout the country.
Rupee slippers
After an uninspiring 2011, investors are starting to pay attention. Dreyfus India -- a mutual fund that naturally invests in companies in India -- has gained more than 30% this year.
Let's dig into some of the more intriguing tech and consumer-facing companies in India.
- Tata Motors (NYSE: TTM ) , India's leading automaker, may not be a household name stateside outside of its Jaguar Land Rover arm, but the real story here is Tata's smaller -- and typically far cheaper -- automobiles. Tata is the world's third-largest automaker in the small-car market, and worldwide sales soared 26% last month.
- Rediff.com (Nasdaq: REDF ) is a company that I've been bearish on in recent years. The Internet portal operator is not profitable and generating less than $2 million in monthly revenue. However, the stock is trading for a little more than a third of last year's unjustified peak. Rediff still may not be a bargain, but it will be a winner if India's pro-Internet initiatives bear fruit.
- Sify (Nasdaq: SIFY ) provides connectivity, hosting, and other IT-related services throughout India. Last month found Sify unloading its stake in the unfortunate MF Global India venture. Like Rediff, Sify isn't where it needs to be fundamentally -- and its stock has also fallen by nearly two-thirds since peaking last year.
- MakeMyTrip (Nasdaq: MMYT ) watches over India's most popular travel portal. MakeMyTrip is both growing and profitable, making it a relative dot-com darling when pitted against Rediff and Sify. The stock isn't exactly cheap, but check out the growth. Analysts see MakeMyTrip earning $0.20 a share in the fiscal year that began earlier this month, more than doubling to $0.42 a share next year.
Betting on the lot
Instead of singling out individual winners -- and there aren't that many that trade on stateside exchanges -- investors can buy into a basket of stocks through mutual funds.
There's certainly nothing wrong with Dreyfus India, but the smarter bet may be India Fund (NYSE: IFN ) .
As a closed-end fund, India Fund trades throughout the day on the New York Stock Exchange. Most closed-end equity funds actually trade at a discount to their net asset values, and India Fund started off the week at a nearly 10% discount.
India Fund hasn't kept up with Dreyfus India this year, but it's a smart and discounted play on a promising country that's starting to come into its own.
It's too early to give up on China. Warts and all, some of the better growth stocks there are trading at healthy discounts to their heady growth rates. However, it's also a good time to begin delving into the mostly forgotten opportunities of buying into India.
It's a small, small world
Motley Fool's top stock for 2012 is also an international play, though it's far away from India. If you want to learn more, the report is free -- like this article -- but it won't be around forever, so check it out now.
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Report this Comment On April 17, 2012, at 3:02 PM, teamonfuego wrote:
RIck - I just started a position in MMYT a few days ago. I really like this one. Last quarter they did $0.09 EPS in constant currency and should grow revenues about 50% annually for the next few years. There are some great things about this company that are hard to ignore:
(1) Own 30% market share and that share has grown over time (was about 28% a year ago).
(2) Invested heavily in online booking and expanding into hotels over the past year which caused a spike in expenses and is making current EPS look lower than it will be after the benefits of this expansion are realized.
(3) Only 3%, yes 3%, of the population in India has a broadband connection.
(4) Of the bookings they do only 10% of their bookings are done online, the rest are done through agents. As this moves more toward online the profitability of the company should expand.
I believe they will do about $0.50 to $0.60 EPS this year (not sure where you got your estimates) and it should trade at 60 times earnings given the growth prospects. This will be a 10 bagger over the next several years.
Report this Comment On April 17, 2012, at 4:02 PM, TMFBreakerRick wrote:
teamonfuego, I like your thinking on MMYT.
FYI, I pulled the earnings forecast from Nasdaq:
http://www.nasdaq.com/symbol/mmyt/earnings-forecast
Rick
Report this Comment On April 17, 2012, at 4:55 PM, teamonfuego wrote:
Rick - I just don't see how they could arrive at those estimates given their past 4 quarters were:
$0.03, $0.04, $0.04, and $0.09. That alone is $0.20 in EPS. Given they're growing Revs at around 60 to 70% (and earnings are growing faster), you can easily project $0.40 this year.
Here is a brief recap on what was going on with King Fisher. Some analysts believe this had an impact on MMYT:
http://www.reuters.com/article/2012/02/21/india-kingfisher-i...
Report this Comment On April 18, 2012, at 9:10 AM, 3Fairfield wrote:
Great article.
For anyone seriously interested in investing in India I recommend "Imagining India: The Idea of a Renewed Nation" a fascinating look at the challenges to development in India from colonial times to this decade, written by the former co-chairman of Infosys Technologies Ltd. Nandan Nilekani who is now the head of the Government of India's technology committee called TAGUP.
I'm not finished with the book but I agree with the editorial blurb I found on Amazon: The premise of this suave and unabashedly free market overview of the New India—the rising economic powerhouse—is that ideas lead economic and social policy rather than the other way around.
And thank you for posting the investment suggestions. I was having some difficulty finding good stocks to invest in--Nestle India was the lone idea I came up with.
J.
Report this Comment On April 19, 2012, at 5:02 AM, sanket81 wrote:
Beware: NYSE:IFN looks like a super loser fund. It is 66% below is 2008 high whereas the leading Indian indices are about 15% below their 2008 highs.
In 2010, Indices touched their 2008 highs but IFN stayed 33% below its 2008 high. The fund is a BIG under-performer.
Report this Comment On April 24, 2012, at 12:05 PM, Bala110 wrote:
Rick is a master stock picker he No's it all! Hey Rick you've been to India? I have 6 times on my way to HK - 2 in 1 kill! As for if this then that is not making calls.
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