A Play on India’s Turnaround

09/23/2008 12:00 am EST

Focus: GLOBAL

Paul Goodwin

Emerging Markets Specialist and Analyst, Cabot Heritage Corporation

Paul Goodwin of Cabot Wealth Advisory finds much to like about a beaten-down Indian banking stock.

My new stock idea is a big Indian bank (almost $3 billion in total assets, as of March 31, 2008-Editor), ICICI Bank (NYSE: IBN), a private-sector commercial bank that has grown from an arm of the World Bank into one of India's leading banks. It introduced ATMs into India and was the first Indian stock to list on the New York Stock Exchange [in March 2000]. 

With well over 700 branch offices, the bank is reaching out aggressively to the growing Indian middle class, and when the Indian economy gets back on the growth track, it will represent a real opportunity.

Right now, India is fighting the good fight against inflation (forecasted for 2008 at 11.5%-Editor), which means that interest rates are high.  High interest rates put a damper on mortgages, in which ICICI is a domestic leader, and auto sales-the financing of which is also a strong point in the bank's business. 

The dampening effects of rate hikes have pushed IBN down from $74 to $25 (the shares took more than a 5% hit on the news that ICICI had minor exposure to Lehman Bros., about 0.1% of total group assets-Editor), which is a heck of a haircut in anyone's book. But the stock is now tightening up, with narrowing swings of both highs and lows. This kind of chart pattern often leads to a useful base and eventually to a breakout into another rally.

IBN is a perfect stock for your watch list as you ride out the current bear market. Presumably you're heavily in cash in your portfolio, which allows you to laugh at the winter of the stock market's discontent. When IBN starts to rise again, you should look for the rising price and soaring sales volume that indicates increasing support and jump in. 

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