The Top 3 Indian Stocks You Cannot Miss Buying Right Now

The IMF recently raised its 2015 economic growth forecast for India from 6.0% to 6.4%, amid a renewed confidence in the Modi government as it implements business-friendly reforms and seeks to attract more foreign investments into the Indian economy. We expect the Indian economy to grow to US$2 trillion by the end of 2015, surpassing US$5 trillion by 2020.

We expect earnings of Indian public companies to double over the next three years as economic growth accelerates. U.S. investors who want to invest in overseas high-growth companies should consider India, as no other major country offers similar high-growth stories. The Chinese economy, for instance, is slowing down while the Brazilian and Russian economies flirt with recessions.

You may already have some exposure to the Indian economy through investments in global companies such as British American Tobacco (BTI), Unilever (UL), and GlaxoSmithKline (GSK). But if you want to invest in the Indian growth story directly, here are three stocks to consider:

ICICI Bank (IBN), with a market value of $28 billion and a 2014 gain of 34%.

ICICI Bank is India’s largest privately-owned financial institution, with over 3,700 branches and $100 billion in assets. In local currency (rupee) terms, ICICI grew its revenues by 9% during the fiscal year ending March 31, 2014, driven by a 19% revenue gain in its banking franchise.

ICICI is poised to take advantage of a national policy to provide 150 million Indians a bank account by 2018; the bank is aiming to add 1.5 million bank accounts over the next 12 months. Today, only 60% of India’s population have access to financial services. This will change as Indians accumulate more wealth while physical assets, such as gold, lose luster as inflation trends down.

ICICI will also benefit from the government’s recent increase in the housing loan interest tax deduction from 150,000 to 200,000 rupees (approximately $2,450 to $3,300) a year. This will increase housing affordability and thus demand for housing loans. ICICI will benefit more than its peers as housing loans make up more than 20% of all its loans, double the banking system’s average of 10%. Earnings only rose by 3% during the same period as its insurance division lagged, but we expect profitability to rebound significantly as demand for insurance products increases.

Tata Motors (TTM), with a market value of $28 billion and a 2014 gain of 29%.

Tata Motors, the largest commercial vehicle manufacturer in India, has benefited from the substantial profits generated by its premium brand: Jaguar Land Rover (JLR). JLR grew at an average annual rate of 40% over the last five years, and accounted for 43% of all Tata’s vehicle sales in 2014. Over the last year, JLR accounted for all the profits generated at Tata.

Tata will also benefit from the Indian government’s plan to spend $1 trillion on infrastructure investments, as it dominates the local medium and heavy commercial vehicle market with a share of 54%. Finally, Tata’s JLR brand is well placed to take advantage of the growth in the luxury automobile market in India and China. The new Land Rover Discovery Sport, unveiled at the Paris Motor Show, received more than 1,200 orders in three weeks. The all-new Jaguar XE, to be launched in early 2016, is also being eagerly anticipated.

Dr. Reddy Laboratories (RDY), with a market value of $8 billion and a 2014 gain of 21%.

Dr. Reddy’s is one of the largest and most-recognized generic drug manufacturers in the world, particularly in emerging market countries. Its low-cost manufacturing facilities in India, as well as its proven ability to manufacture hard-to-make drugs, has enabled the company to build a major presence in both developed and emerging markets.

In local currency (rupee) terms, Dr. Reddy’s revenue grew by 16% for the 12 months ending June 30, 2014, driven by a strong generics market in North America, Eastern Europe, and India. Earnings rose by 37% over the same period. We expect the company to double its revenues over the next five years as: 1) upcoming drug patent expirations generate greater demand for generics and bio-generics around the world, and 2) rising incomes and greater healthcare insurance coverage should lead to a doubling of spending in the Indian pharmaceutical market over the next five years. Dr. Reddy’s low-cost structure and brand name recognition in emerging markets should propel earnings growth for years to come.

Disclosure: Neither I nor my firm, CB Capital Partners, holds any shares in IBN, TTM, or RDY.

Bio:

Henry To, CFA, CAIA, FRM is Partner & Chief Investment Officer at CB Capital Partners. Established in 2001, CB Capital Partners is a global financial advisory and investment firm headquartered in Newport Beach, California, with an office in Shanghai, China and an affiliate office in Mumbai, India. Visit http://www.cbcapital.com and http://www.cbcapitalresearch.com for more information.