Indian equities took off over the weekend as the free marketer, Manmohan Singh, was reelected prime minister to the detriment of the Communist party. Indian stocks surged over 17% – an all-time, one-day record gain. The shares may have climbed even higher, but the gain on Bombay Exchange Sensitive Index (Sensex) tripped circuit breakers that shut down trading for the day.
Investors loved the fact that Singh, formerly India’s finance minister, soundly trumped his opponents and will bring back the magic of the 1990s when he helped introduce reforms. The thought on the street is that the thick red tape and entrenched political bosses will be trimmed back to make way for business.
Tale of Two Pendulums
It is interesting to note that the Indian Sensex is up 15% year to date on the idea of free markets and deregulation. The S&P 500 is up 2% after the U.S. government has nationalized the entire investment banking industry, two-thirds of the auto industry, a large chunk of insurance and most mortgage financing.
It seems obvious to me that in the choice between the two, you want to own the country that’s deregulating.
Buy India
In my investment newsletter, BreakAway Investor, I recommended Mahanagar Telephone Nigam (MTE:NYSE:ADR) as a company that had a six-month head start introducing 3G phone service in India.
We bought the stock at $2.87 – it is now at $3.44 after the rally. That’s a nice little run and I am recommending adding Indian positions for several reasons.
- Morgan Stanley predicted India will grow GDP by 5.8% this year.
- India has a surplus of US$246 billion.
- India is not dependent on exports the way China is to sustain growth.
- Relatively lower priced commodities help India, a net importer of raw goods.
One possible catalyst for share price appreciation would be a widely rumored upgrade from Moody’s on the country’s credit rating, which is now two steps below investment grade at BBB.
Where to Look
Not all companies are the same; those companies that saw the biggest jump on the election news will likely continue to see gains. Tata Motors has introduced a $2,500 car and its chart is on a solid uptrend – up 300% over the past few months. Tata was up 19% yesterday alone after it announced that it was selling $879 million of debentures to repay debt.
ICICI Bank (IBN:NYSE) is the largest non-government-owned bank in India. It just announced it is opening 500 new branches. Indian banks didn’t play nearly as much in the debt-swap game as their European and U.S. competitors.
Sincerely,
Christian DeHaemer
BreakAway Investor
Originally published May 20, 2009.
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