India Rising

Christian DeHaemer

Posted January 23, 2024

India is China Circa 2006

One of the major investment themes here at Pro Trader Today is the global decoupling from China.   

The idea is that the supply chain debacles of the covid years coupled with the autocratic hand of president Xi and the ongoing tech feud with the U.S. means that global multinationals are looking for new places to do business.  

Places like Thailand, Vietnam, Indonesia and Mexico have benefited from this factory diaspora.

And perhaps the biggest winner is India.

India has many positives.  They have a middle class that includes roughly 300 million people.  They also have the rare benefit of a growing working age population.  In terms of population pyramid India has it going on.  Half of Indians are under the age of 25.  By 2030 one-fifth of the working age people in the world, those between 18 and 64, will be Indian.

Furthermore, India’s stock market just surpassed Hong Kong as the fourth largest in the world and the latest GDP growth number came in at 7.3%.

The economy is booming on strong government and consumer spending as well as a robust service sector.  The falling price of oil and other commodities has also contributed to growth.  This is in spite of the central bank hiking interest rates six times since 2022 to slow inflation.

The government of Prime Minister Modi is pro-business and has ramped up its spending on infrastructure.  Furthermore, foreign businesses are dumping more cash into the country to build factories especially in tech.

Major international banks such as Barclays Plc and Citigroup Inc., have raised their full-year projections on India.

The Subcontinent Strikes Back

If you are a believer in the India story and think it is like investing in China in 2006 the question becomes how you should play it.

China Life Insurance Company (2006-2007):

The old advice when buying a fast-growing, emerging market was to buy the large companies like the telecoms, the banks and the oil companies.  The idea is that there are only so many liquid companies and that all the mutual funds and ETFs will buy the batch and drive them up.

What I like to do is find the companies that trade in New York in the form of an American Depository Receipts (ADR) and pick from that list using basic value metrics like PEG ratios.  

Out of the 10 or so large Indian companies that you can buy with a normal brokerage account I like ICICI Bank (IBN) which is the second largest bank in India.

IBN has been growing earnings at a 25% clip lately.  This growth should accelerate due to future interest rate cuts by the central bank.  

IBN has a market cap of $84 billion and has $1.2 trillion in cash. They have a forward p/e of 16 and with that 25% earnings growth rate that gives you a PEG ratio of 0.56 which is pretty cheap.  Anything below a 1 is considered a buy.

The company is also a leader in digital banking for both retail and corporate customers.  Since September they have signed up 10 million people to their iMobile Pay from non-ICICI Bank users.

Here is the three-year share price chart:

As you can see we have an ascending triangle which is bullish.  The stock gapped-up, then came back and filled the gap, and is now on the verge of a breakout.  Given the consolidation over the past 18 months, and its history of jumping 30% on a breakout, this stock should be trading in around $34 by August 2024.

Buy ICICI Bank (IBN) at the market with the idea you will hold it for the next five years.

All the best,

Christian DeHaemer
Pro Trader Today