A Tour of Countries: India
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We live in a global economy today where, as investors, we have a broad choice of investment options in international markets. Whether it be for diversifying away from a purely U.S. based portfolio or for following new growth opportunities, the world abounds with chances to profit. In this series entitled A Tour of Countries, I will provide one example in each country explored of a manufacturer, an airline, and a provider of services to consumers. By no means will the list be a complete description of everything each nation has to offer. But it can be a starting point for entering the world of international investing.
India: Emerging market opportunity
Data from the World Bank shows India to have a population of over 1.2 billion people as of 2011. While many Indians continue to live in poverty, a rising consumer class is building in this populous nation and their demand for a middle class lifestyle could make this country a high return place for your investment.
Manufacturer: Tata Motors (NYSE: TTM)
As hundreds of millions of people demand goods that we deem essential to the middle class lifestyle, demand will surge for one key product: The automobile. Many of us get in our car every day and think nothing of it. But to many Indians, this is their first time purchasing a car and Tata Motors is ready to deliver a product.
Best known for its ultra cheap Tata Nano, this automaker is trying to do to India what the Ford Motor Company did for America. By bringing vehicles to the masses, Tata hopes to become a world class automaker by capitalizing on surging demand in India.
Trading at $27.11 per share gives Tata Motors a market cap of roughly $14.7 billion, or about one tenth of auto giant Toyota Motor. With the relatively low market cap and the potential for growth, Tata has room to grow provided there is not a major downturn in the Indian economy. The Indian automaker even rewards its shareholders with an annual dividend of around $0.354 cents annually for a yield of 1.34 percent. This combination of growth potential and small dividend could appeal to investors interested in pursuing the growth of India's consumer class while generating a small amount of income.
Travel: MakeMyTrip (NASDAQ: MMYT)
The original plan was to find the flag carrying airline for India and give a description of it here. However, Air India, which has this role in Indian aviation, is out of reach to the ordinary investor since it was nationalized by the government. Most other Indian airlines do not trade in large volumes on U.S. Exchanges. Fortunately, there is another way to invest in Indian travel.
MakeMyTrip is a travel booking site for India and is looking to get in on growing travel demand in this expanding market. However, since its initial public offering the stock has been a disappointment falling from the mid $20s to the low teens where it trades today. Trading for over 100 times earnings, investors must expect strong future growth for their investment to retain its value. Only time will tell whether MakeMyTrip can become the dominant travel site of India, and how lucrative that position will be, but investors today must be hoping for a reversal in the share price downtrend that has followed the company over the past year.
Services: Sify Technologies (NASDAQ: SIFY)
What do you get by combining India with the Internet? You get Sify. This service provider operates e-commerce activities, provides hosting solutions, and manages a chain of cyber cafes. But the potential long term gains from playing the rise of the Internet in India will require a lot of investor stomach if past events are any indicator of Sify's future.
Currently trading at $1.93, this stock has seen its fair share of volatility. Shares popped above $8 in early 2011 before losing more than half their value before returning to rise above $5 per share. During all of this volatility, it was revealed Sify's outstanding shares actually numbered 178 million, not the 53 million investors believed. Suddenly a $300 million company had a billion dollar market cap. Overall, the wild rides of Sify are not for the faint of heart. While there is the chance investors could see multibagger gains on the next pop, investors could just as easily lose their investment if the price collapses or more bad things have happened behind the curtain.
What is happening in India is an emerging markets opportunity. A growing middle class is craving more goods, more services, and more companies to fulfill their needs. This list is by no means comprehensive of all companies operating in the Indian market but it is a selection of a few. As always, do your due diligence before making any investment decision. The time spent doing this may be the best investment of all.
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