India, which puts the “I” in “BRIC,” might finally be living up to its growthy potential. After years of struggling under bureaucratic red tape and corruption, India … well, it’s not necessarily rid of those things, but over the past year, it has begun to emerge.
And the current upward swing of Indian stocks and the country’s economy can be heavily attributed to one thing: the election of Prime Minister Narendra Modi.
Modi ran on a platform of boosting infrastructure spending, job growth, ending stubbornly high inflation as well as curbing corruption and India’s governmental inefficiencies. So far, Modi has lived up to his promises. Last year, economic growth recovered and Indian stocks returned a whopping 30%, making the nation one of the best-performing markets on the map.
While Indian stocks are flat this year, there’s still plenty to drive them looking forward. Ratings agency Moody’s recently increased its outlook on India’s credit to “positive” from “stable” as Modi’s reforms continue to improve the emerging market’s “macro-economic, infrastructure and institutional profile.” All in all, that will allow the economy and Indian stocks to outperform other developing markets.
Given the nation’s potential, investors should be starting to look toward India for some portfolio firepower. Here are three great Indian stocks to buy:
Indian Stocks to Buy: Tata Motors Limited (ADR) (TTM)
Lusting after a new Jaguar XF or Range Rover automobile? You’re not alone. While they used to be symbols of the U.K.’s car & driving prowess, today they are actually hooked to India, as the brands are owned by manufacturer Tata Motors Limited (ADR) (NYSE:TTM).
TTM bought the two brands during the Great Recession, then increased their quality, in turn helping Tata Motors on the sales and profit front. Since buying the luxury duo, Tata has grown sales of the brands at an annual rate of 40% over the last five years. In 2014, Land Rover & Jaguar accounted for all of TTM’s profits.
Moreover, both brands should continue to grow in their key markets of China and the Middle East as wealth grows in these emerging market hot-spots. A new deal with Chinese Internet marketplace Alibaba Group Holding Ltd (NYSE:BABA) will help on that front.
Another reason why TTM is among Indian stocks you should buy? India!
In recent years, many Indians have put off buying new cars amid a sputtering economy and high inflation. However, with Modi’s reforms underway and with credit easier to get to, Tata should see its numbers improve on everything from its tiny Nano to its larger SUVs.
Lastly, TTM stock is a value at a price-to-earnings ratio of just under 10.
Indian Stocks to Buy: Dr.Reddy’s Laboratories Ltd (ADR) (RDY)
The healthcare sector has been a loaded source of profits for investors for years. And while many of these profits come from innovative therapies and biotech drugs, there’s also a lot to be found from good ol’ generic drugs — especially in emerging markets, where they’re treating many relatively easy-to-cure illnesses.
India’s Dr.Reddy’s Laboratories Ltd (ADR) (NYSE:RDY) is one of the largest manufacturers of generic drugs in the world. RDY’s portfolio includes everything from generic oncology drugs to over-the-counter pills for treating heartburn. And that portfolio extends across the developed and developing world — a win-win scenario for investors.
In the developed world, RDY should continue to see rising sales as healthcare providers and consumers seek cheaper alternatives to combat higher healthcare costs. RDY has recently sought to expand its offerings in the United States to more “complex” drugs.
In the emerging world, RDY continues to expand its “basic” portfolio of therapies. That’ll be a boon as rising wealth pushes more consumers into healthcare options. And with a major foothold in India, Dr.Reddy’s Lab will be the chief beneficiary from Modi’s reforms.
In a bubble, RDY shares aren’t cheap at a P/E of 26 — but when you compare that to many biotech firms, and consider that Dr.Reddy’s is expecting robust growth (revenues are projected to improve 40%-plus this year), that valuation doesn’t sound so bad.
Indian Stocks to Buy: Infosys Ltd ADR (INFY)
India is home to plenty of innovation, and actually has some decent representation in the global tech sector.
See: Infosys Ltd ADR (NYSE:INFY).
Infosys was the giant in India’s consulting, technology, and outsourcing industry, providing IT for such firms as Apple Inc. (NASDAQ:AAPL) and Wal-Mart Stores, Inc. (NYSE:WMT). The bellwether has struggled of late thanks to key personnel exits and lost contracts … but that could actually make INFY a great bargain among Indian stocks right now.
Under new CEO Vishal Sikka, Infosys has been plowing headfirst into new higher-margin businesses, such as automation, renewable energy and artificial intelligence. The strategy — dubbed “Renew and New” — should help INFY increase its revenues to about $20 billion by 2020, up from only $8.7 billion now. Infosys has already made some real headway by making a few acquisitions in mobile commerce.
This is starting to show on the earnings front. Net profits for Infosys for the fourth quarter came in at 30.97 billion rupees, compared to 29.92 billion rupees during the same period a year ago. Much of that growth can be attributed to the recent moves the firm has made expanding into higher tech.
At a P/E of 17, INFY stock is cheaper than rivals such as Wipro Limited (ADR) (NYSE:WIT), and there’s plenty of long-term upside as Infosys gets its house in order.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.
More From InvestorPlace
- 7 Stocks That Will Pummel Your Portfolio
- 10 Healthcare Stocks Taking Aim at Cancer
- 7 of the Best IPOs to Buy