Indian Portfolio Exposure - Tricky But Possible

by: Sven Carlin

India is expected to grow at 7% per year with extremely positive demographic trends.

An analysis of all Indian ADRs and the MSCI ETF shows that not all Indian companies are actually exposed to the Indian economy.

It is important to look at valuation; overpaying for something is never good, no matter the potential growth.

India (NYSEARCA:EPI) is the fastest growing economy in the world. Its demographics are extremely positive and the economic development is expected to last several decades. However, this doesn't mean that every investment in India (BATS:INDA) will end up as a very profitable one.

An MSCI research report shows that there is no link between economic growth and stock market returns. That is correct, but this is due to the fact that investors usually get overexcited in booming economies and quickly forget about valuations. A similar thing is happening now in India as valuations are extremely high, even when calculating the potential growth. For example, the India Fund (NYSE:IFN) has a price to earnings ratio of 39.68.

On top of the valuation issues, not all companies that are Indian are actually exposed to what is going on in the Indian economy (NYSEARCA:SCIF).

In the below video, I analyze the exposure to the Indian economy and growth of every Indian ADR listed on the NYSE and discuss alternative ways to be exposed to the Indian economic boom. The goal is to find relatively cheaper exposure that will benefit from the growth but will also be a profitable investment.

It is extremely important to understand the following:

- Not every Indian stock is exposed to the Indian economic boom. For example, the Indian global business service providers like Infosys (NASDAQ:INFY) and Wipro (NYSE:WIT) might actually suffer from positive developments in India as higher domestic costs would lower their margins given that more than 90% of their revenue is from outside India.

- India will definitely grow but this doesn't mean that every Indian investment will create satisfying returns. I discuss all Indian ADRs listed on a U.S. stock exchange to show how each option has specific risks that aren't mitigated by economic development.

- Perhaps the best way to be exposed to the Indian economic boom is to do so indirectly. India is at a development level where China was two decades ago. Consequently we can expect a huge increase in demand for commodities, especially those needed in the first stages of economic development.

Enjoy the video.

The companies analyzed in the video are the following:

1. Azure Power (NYSE:AZRE)

2. Dr. Reddy's Laboratories (NYSE:RDY)



5. Infosys

6. MakeMyTrip Limited (NASDAQ:MMYT)

7. Sify Technologies (NASDAQ:SIFY)

8. Tata Motors (NYSE:TTM)

9. Vedanta (NYSE:VEDL)

10. Videocon d2h (NASDAQ:VDTH)

11. Wipro

12. WNS Holdings (NYSE:WNS)

13. Yatra Online, Inc. (NASDAQ:YTRA)

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am long ANFI which is not directly analyzed but still gives exposure to India.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.