India Isn't China, So Bet On India?
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India rivals China based on population. However, it hasn't managed to achieve the same success as China in its industrialization efforts. Now could be a good time to invest in India with stocks that have international operations.
India isn't China
China and India share many traits. For example, both have massive populations and a foundation in an agrarian economy. China, however, with its strong central government, has been better able to shift to an industrial model. India's democratic government has actually stood in the way of that country's progress.
Sharat Shroff and Sunil Asnani, co-managers of Matthews India Fund, noted recently that, “India’s often unfavorable policy environment has led some to eschew investing in India, and the past two years have been difficult given limited central government reforms. However, solid well-run businesses may still be in a better position to at least partly overcome these challenges.”
Another problem facing India is the challenge of employing its massive and still growing population. Unlike China and its one-child policy, India's population is still growing strongly. The country hasn't been able to absorb all of its potential workers. A weak educations system is partly to blame, but so, too, is the government's burdensome rules.
However, this could create an environment in which well run companies with global footprints can excel. This is so because they will increasingly have their pick of the top candidates. That isn't to suggest that wages will stagnate, but simply that workers will gravitate to the best opportunities. That will likely be the companies that have reached beyond India's boarders. Here are some names to watch:
Infosys Technologies (NYSE: INFY)
Founded in 1981, Infosys is a global player in the consulting, technology, and outsourcing spaces. It serves customers from more than 30 countries. Its business, however, is far more global than that because it attempts to send work to where it can best be handled. Thus, it has over 150,000 employes from nations around the world, including The United States, China, Australia, Japan, and various European nations, among others.
In the company's 2011-2012 annual report, it highlights that it believes the consulting industry is “rapidly commoditizing.” Management, however, doesn't view this as a negative, it sees it as an opportunity. While opening offices around the world is one example of the way it differentiates itself, so, too, is its willingness to place employees in client locations when appropriate.
The company's top and bottom lines have been on a largely upward path. An improving world economy would clearly boost results, but even during the recession the company was able to excel. A large part of this success is the company's strong customer relationships and repeat business. The shares aren't cheap but do appear a little undervalued at current levels.
Wipro (NYSE: WIT)
Wipro is also a global outsourcing player. The company was founded in 1945 as Western India Vegetable Products Limited and entered the information technology industry in 1981. It has over 140,000 employees in 57 countries, and over 900 clients.
One interesting aspect about the company is the diversity of its business. While IT is the clear core, it also has operations in manufacturing, making such things as consumer products, furniture, and computers. While these businesses are slower growing than IT, they provide a solid base for the company that should help smooth out difficult periods.
Wipro is more compellingly priced than Infosys despite similarly strong top and bottom line trends.
Tata Motors (NYSE: TTM)
Tata Motors is a far more aggressive option. The company is an automobile manufacturer with a massive market share in India and control of the global Land Rover and Jaguar brands. It purchased the two higher-end brands during the U.S. auto industry's brush with bankruptcy.
The company is highly leveraged and demand for automobiles is highly dependent on economic conditions. However, it has made a shift from focusing on its domestic market to operating on a global scale. That gives it a leg up on competitors from China, which also have global aspirations.
Tata Motors should benefit from taking the knowledge and skills from its global brands and applying that to its domestic business. This should allow Tata to compete more effectively as the Indian car market expands with an expanding consumer class. It should also allow the company to branch out of its home market with its domestic nameplates.
The shares are probably a little undervalued at recent prices.
India as the also ran
India is the perpetually forgotten country in Asia. Its slow economic progress is good reason for this, but it is the home of truly important global companies. These entities should be able to break free of the local bureaucracy and use the large population in the country to thrive over the long term.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!