Superstar Investors Name India's Top Stock

If the top stocks usually yield the top returns, then it pays to know what our 110,000-strong Motley Fool CAPS community likes right now. Here are their five favorite companies and funds from the Indian subcontinent:

Sources: Motley Fool CAPS, Yahoo! Finance.
*Return Since 8/3/07. Virtusa began trading in August 2007.
**Return Since 2/26/08. WisdomTree India began trading in February 2008.

Not so impressive, is it? As a group, Indian stocks have fallen 15.9% over the past 30 days and 18.2% over the past year. And on Friday, India's Sensex benchmark -- roughly equivalent to what we have here with the S&P 500 -- closed as its lowest level since May 007.

Ugh.

Why buy a contract software developer such as Virtusa when the Mumbai market is seeing as much bear-market selling as we are in the U.S, if not more? Andrew Foster and Sharat Shroff, managers of the Matthews India (MINDX) fund, offer little comfort in the opening remarks of their most recent letter to shareholders: "India runs a capital account deficit, meaning that it must import capital from abroad to support its consumption. As the global tolerance for risk has retrenched, flows of capital bound for India have slowed -- and thus it can be no great surprise that local markets have slumped in response."

Even so, with an underserved infrastructure and a rapidly growing economy, both Foster and Shroff say they like the thesis for investing in India over the long term. So do I.

Think of today's turmoil as an opportunity to invest in excellent companies such as Infosys (NASDAQ:INFY), as Foster and Shroff have, and Tata Motors (NYSE:TTM), as our Global Gains team has.

But those are obvious choices. To really win big in India, you must think creatively, as the top investors in this CAPS sector have:

Source: Motley Fool CAPS.

Aside from henry122, these superstars favor U.S. companies. And with good reason: American multinationals are doing more business than ever on the subcontinent. Witness IBM (NYSE:IBM), which Ayax2006 rates. Big Blue says its Indian client base grew by 100% last year. Eat that, Accenture (NYSE:ACN).

Take it from the top
But you came here for an Indian stock idea, and I have one: ICICI Bank (NYSE:IBN), which I called a growth winner in January. I still like it for two reasons:

1. Roughly 41% of India's population lacks access to basic banking services.
2. ICICI is India's second-largest bank by assets and is therefore more likely to attract underserved populations.

Shares of ICICI have fallen 58.9% since I stuck my neck out. Thanks, Mr. Market. But is this extraordinary haircut fair? I suppose it's possible. As with the U.S., inflation and a declining currency are big problems in India. And as we've seen here, when these twin terrors attack, they tend to sap consumer wealth. Banks don't get much business when consumers are feeling poor.

Yet business hasn't exactly been slow for ICICI. Fiscal fourth-quarter profit, reported in April, rose 39%. Net interest income rose 30%. Total assets increased 16%. Most U.S. banks would love to have numbers like that right about now.

And in the long term? CAPS All-Star dpid likes ICICI's prospects: "Everyone is scared about India's rate increase, but long term, banking in India is the way to go. Banks in India are circa 1960s U.S. in the way people view them or don't use them extensively." Thus, says dpid, the investment appeal of banks lies in the opportunity for banking to expand in India "as [the] middle class increases tremendously."

The Foolish majority agrees -- 96.8% of the 816 investors who have rated ICICI in CAPS say it will outperform the S&P 500. But I want to know what you think. Would you buy ICICI at today's prices? Use the comments box below, and then let your opinion be heard by rating ICICI in CAPS. Get started now; it's 100% free to participate.

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