Indian stocks look like a very good place to invest right now, as the country’s economy is growing like a weed thanks to its government’s positive economic reforms.
These reforms are likely to boost employment (and salaries), making two Indian stocks — MakeMyTrip Limited (NASDAQ:MMYT) and Tata Motors Limited (ADR) (NYSE:TTM) — look pretty attractive right now.
Here’s why.
Why India’s Economy Is Roaring
India’s economy expanded at a rapid 7.5% annual rate in the fourth quarter of last year, and economists predict that it “only” grew 7.2% year-over-year in Q1 of this year. Moreover, the UN recently forecast that India’s economy would surge 7.6% this year and 7.7% in 2016.
It’s not an accident that India’s economy is taking off, even as most of the rest of the world remains in the economic doldrums. Led by the the country’s new prime minister, Narendra Modi, the Indian government that took office a year ago has enacted a series of potent economic reforms.
For one, the government decided to cut the corporate tax to 25% from 30% over four years. Although New Delhi implemented a 2-percentage-point tax increase on successful companies and the “super rich,” over the long term, the overall tax burden on companies will go down — and companies tend to look at the long term when planning for hiring.
Modi’s government also simplified the tax code for businesses, thereby reducing their costs. Furthermore, the cap on foreign direct investments in the country’s defense and insurance sectors was hiked to 49% from 26%. Meanwhile, inflation has dropped rapidly from high levels, enabling an interest-rate reduction after the government promised to lower the country’s deficit.
All of these measures should ultimately improve Indian companies’ finances, resulting in accelerated hiring and higher wages.
And that in turn should funnel down to help MMYT and TTM.
2 Indian Stocks to Buy
MakeMyTrip essentially is the Indian version of Expedia Inc (NASDAQ:EXPE), allowing users to book hotel room reservations and airplane tickets online. Tata is a bit more well-known a name; it sells autos primarily under the Tata name, though it also owns Jaguar Land Rover.
Both stocks have slumped recently after rising sharply last year, perhaps on high hopes following Modi’s election victory. MMYT stock is off 25% so far this year, and while TTM is down a more modest 9% in 2015, it’s off 24% since its January peak.
However, the past couple months have seen positive signs arise for both Indian stocks.
On April 8, Oppenheimer wrote that MakeMyTrip has several positive catalysts, including MMYT’s increased increased hotel inventory, India’s impressive domestic air passenger volume growth, the country’s growing Internet adoption and low oil prices. The firm kept a $34 price target and “outperform” rating on MMYT stock.
MMYT did report weaker-than-expected fourth-quarter results on May 15, but its gross bookings increased 19% year-over-year, and its revenue excluding service costs jumped 28%. Deutsche Bank responded by cutting its price target on MMYT stock to $25 from $35, but kept a “buy” rating on the name.
Among positive signs for MMYT:Air travel demand in India climbed 17.9% in March, according to the International Air Transport Association via the Press Trust of India.
On May 15, Tata Motors reported that sales of its Tata passenger vehicles had surged 32% in April versus the same period a year earlier. The company, which also owns Jaguar Land Rover, noted that its total global unit sales had increased just 4% year-over-year.
Tata reported its fourth-quarter results on May 26, and the stock slid as the company’s profits missed expectations, largely due to weak sales of Jaguar Land Rover vehicles in China, higher depreciation and amortization, and losses on its hedges.
But even then, it was hard not to be encouraged by the automaker’s overall passenger vehicle sales, which rose 19% last quarter.
Per China: While Jaguar Land Rover sales were weak in China, demand for SUVs in China is exploding higher, and Tata did launch its new mid-sized SUV, the Range Rover Evoque, in China in February. The question there is how it will fare now that it has admitted it can’t take action against a Jiangling Motors look-alike.
Bottom Line
Significant company-specific tailwinds, combined with the effects of New Delhi’s effective reforms, should be plenty to propel Indian stocks like MMYT and TTM higher from here.
As of this writing, Larry Ramer did not hold a position in any of the aforementioned securities.
