The Best Way to Play India Now

If you think the dollar is doomed, you aren't the only one.

My fellow Fool Tim Hanson, co-advisor for Motley Fool Global Gains has warned of the dollar's demise for months now. So has Warren Buffett. Fortunately, neither of these guys has abandoned all hope. Even if the greenback gets a nasty case of gangrene, you still have ways to survive -- and even profit.

Your best bet may be to invest in the stocks of foreign firms that denominate revenue and earnings in stable currencies. India's rupee is one that Tim and Global Gains co-advisor Nate Parmelee like, and for good reason. India has a history of harvesting big winners that trade on American exchanges. Here's a look at the top five returners as identified by Capital IQ:

Company

Recent Price

CAPS Stars
(out of 5)

1-Year U.S.
Return

Patni Computer Systems (NYSE: PTI  )

$20.82

*****

261%

Tata Motors (NYSE: TTM  )

$13.86

*****

381%

Dr. Reddy's Laboratories (NYSE: RDY  )

$24.30

*****

169%

Sterlite Industries India (NYSE: SLT  )

$18.85

****

292%

Wipro (NYSE: WIT  )

$20.40

***

183%

Sources: Capital IQ, Motley Fool CAPS, Yahoo! Finance.

Why your portfolio should like India
China may be all the rage, but if research is to be believed, India may be where the growth is. Why? Prosperity. India ranks as the world's 45th most prosperous country, according to a new report from The Legatum Institute. China ranked 75th.

The implication, naturally, is that a more prosperous India should be able to support more goods and services, more spending, more economic growth, and ultimately higher stock prices. But that's only if Legatum is correct. Skeptics will rightly note that there were more than 200 million Indians living in poverty in 2007. That's a massive number.

And yet there's no disputing the talent India produces. For years, big tech firms such as Cisco (Nasdaq: CSCO  ) have imported brainpower from the subcontinent. That may end soon. A recent survey of talented techies by Tata Consultancy Services says that 49% would choose to work in India rather than go abroad. They'll help to build their emerging economy.

Our 145,000-plus Motley Fool CAPS community also sees opportunity on the subcontinent. Fools give four of five stars to the average Indian stock in CAPS, which tracks 26 issues trading on American exchanges. Interestingly, their top pick isn't a stock but a fund: Matthews India (FUND: MINDX  ) , specifically. The details:

Metric

Matthews India Fund

Business Description

Though earning only two stars from Morningstar, this fund sports reasonable fees, tenured management, and a blowout 2009 return.

CAPS Stars (out of 5)

*****

Total Ratings

150

Percent Bulls

98.7%

Percent Bears

1.3%

Bullish Pitches

21 out of 22

CAPS Members Bullish on MINDX Also Bullish on

Companhia Vale ADS

Apple

The India Fund (NYSE: IFN  )

Paul Matthews has made a career of successfully investing in Asia. For years, he led the Matthews Asian Growth & Income  (FUND: MACSX  ) fund, a spicy blend of big and beefy dividend payers with a few speculative bets mixed in. A decade of index-crushing performance speaks well for this investing combo platter.

Matthews' India fund is more of a blue-plate special, but is also off to an impressive start, besting the MSCI EAFE index by more than 12% a year since 2006.

Yet those gains have come with a price: stomach-churning volatility. A 62% loss last year may as well have wiped out the 64% run-up the fund's investors had enjoyed during 2007. So should you invest? I asked Nate, who said:

Matthews is well known for its Asia and small-cap focus, so if you're looking for some exposure to Indian companies that aren't listed internationally, its India fund is worth consideration for a small part of an investors' portfolio.

Good advice. But if you already have the guts to handle volatility, your best bet may be to invest in India directly. That's why Tim and Nate are about to leave on a scouting trip across the subcontinent. Click here if you're interested in finding out what they learned.

Each month, Tim and Nate spotlight promising international stocks in Global Gains. Try this market-beating service risk-free for 30 days and get access to coverage of all of their recommendations, including Sterlite Industries.

Fool contributor Tim Beyers is a member of the market-beating Rule Breakers stock-picking team. He had stock and options positions in Apple at the time of publication. Apple is a Stock Advisor recommendation. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy is an unapologetic globetrotter.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 24, 2009, at 6:10 AM, meiroy wrote:

    "Why? Prosperity. India ranks as the world's 45th most prosperous country, according to a new report from The Legatum Institute. China ranked 75th."

    Did you carefully analyze this report to learn what kind of weights they used to determine prosperity? It seems that for them India is prosperous because it's a democracy and supposedly has individual freedoms while China is not a democracy and as such is not prosperous. Now, it's quite possible that India is more prosperous they reasoning just doesnt seem to match.

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