Two Ways to Buy Into India’s Growth

10/31/2007 12:00 am EST

Focus: GLOBAL

Yiannis Mostrous

Editor, The Capitalist Times

Yiannis G. Mostrous, editor of The Silk Road Investor, says India is Asia’s best growth market and he recommends one fund and one stock that should profit from it.

Asia remains the global growth engine and will continue to be for years to come. The region’s economies are enjoying a multiyear boom that’s increasingly rooted in positive changes taking place in their domestic economies.

The time will come when Asia, as well as the rest of the emerging market universe, will reach extreme valuations and peak out in a mania-like fashion. That time isn’t here yet; these economies are in their early stages of all around development, and investors are still discovering the new reality and the investment opportunities it offers.

India is one of the two Asian giants that are leading this transformation. And although India can’t match China’s reported growth rates, it’s also avoided the boom-and-bust cycles so characteristic of the region’s developing economies in the past.

Even with a slowdown in the global economy, India will be able to perform well and achieve 9% GDP growth, and could be the fastest-growing economy in Asia by next year. Its performance will surprise a lot of investors because India will be in a position to surpass China given the latter’s big exposure to the global trade cycle and a global economic downturn. India’s exports represent 22% of GDP, relatively low compared to the region’s average of 60 %.

At current levels, the Indian market isn’t cheap by any measure. And yet investors have proved they’re willing to pay for solid growth. This is the reason that the Indian market fell less than the rest in the summer sell off.

India remains the best growth story in the world, and given its strong characteristics the market should continue to perform well. Matthews India Fund (MINDX) is a conservative and easy way to get direct exposure to the country. Given the market’s current levels, it would come as no surprise to see some profit-taking in the near future. But long-term investors should treat any such pullback as a buying opportunity, provided it’s not the result of a global economic recession. Buy Matthews India Fund at current levels.

Tata Motors (NYSE: TTM) offers more leveraged exposure to the domestic demand story, specifically automobile sales. The company manufactures and sells commercial and utility vehicles and passenger cars in India. It has a 65% share of the medium and heavy commercial vehicle market in India. Passenger cars contribute 25% to 30% of revenue.

Although the rise in raw materials prices has been a drag for Tata Motors’ operations, the company has completed next year’s contract negotiations with its steel vendors on generally favorable terms, especially given the current pricing environment. The stock is cheap and, despite short-term worries, offers a good entry price.

The company is also considering buying Ford’spremium Jaguar and Land Roverdivisions. An acquisition could be a long-term positive, although the price paid will be the most crucial consideration. Buy Tata Motors up to $23. (The ADSs closed at $20 on Tuesday—Editor.)

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