Triple Play on India
06/26/2014 10:00 am EST
India’s bureaucracy is large, convoluted, and corrupt; its new prime minister, Narendra Modi, will need to form a strong central government to implement the changes necessary for India to maximize its economic potential, observes Yiannis Mostrous, international investing expert and editor of Capitalist Times.
The size and complexity of this task cannot be understated. But it’s not all doom and gloom in India.
India’s economy appears to have bottomed, with gross domestic product (GDP) growing 4.5% last year and the Bloomberg consensus estimate calling for a 4.7% expansion in activity in 2014.
And more so than any of his predecessors, Modi has a chance to initiate structural changes to India’s struggling economy.
These changes won’t happen overnight, and the new prime minister won’t have the answer to every problem. Still, any sign of renewed investment and credit growth could translate into another leg higher for India’s stock market.
HDFC Bank (HDB)
India’s best-run financial institution, HDFC Bank has amassed a network of more than 3,400 branches and 11,000 ATMs in 2,100 cities.
Even more impressive, the bank’s loan growth has averaged 36% annually over the past decade and remained robust in recent quarters.
HDFC Bank is a balanced enterprise with strong management and realistic goals. Given its market share and extensive footprint, the company offers upside leverage to India’s economic recovery and long-term growth.
Consulting and software services outfit Infosys is one of India’s top information-technology companies. An investment in Infosys represents a bet that the company’s turnaround story will continue to gain traction.
The challenges facing the IT firm include the recent departures of several senior management personnel, employee attrition, and an increase in the average cost per employee.
Infosys won’t right the ship overnight; this turnaround story is better-suited for patient investors who have a longer time horizon.
WisdomTree India Earnings (EPI)
Investors looking for one-stop exposure to Indian equities should consider WisdomTree India Earnings, an ETF that includes a diversified mix of large-capitalization and midcap stocks from a wide range of sectors.
India’s stock market historically has exhibited a great deal of volatility, in part because of its reliance on foreign investment flows.
Accordingly, prospective investors should have the stomach to deal with these fluctuations in exchange for exposure to the country’s long-term economic promise.
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