Indian markets have been among the best performing markets globally in 2014. The strong performance of the Indian markets has come on the back of government change. The new government is pro-investment and India’s GDP growth is likely to trend higher in the coming years as pro-development measures are initiated.
In this article, I will discuss two Indian stocks that can be considered for 2015. I believe that India’s market will remain among the top performers in the coming year as well and this will take these two stocks higher.
One of the biggest positives for India in the recent past has been the steep decline in crude oil prices. Decline in oil prices coupled with decline in gold prices has narrowed India’s current account deficit and I believe that this will help in improving the country’s fundamentals going forward.
Coming to the two investment ideas, my first investment idea for 2015 is ICICI Bank (IBN, Financial). I mentioned earlier that decline in crude prices is a big positive for India. Currently, India’s inflation is at a multi-year low and I believe that the biggest positive for ICICI Bank in 2015 will be multiple interest rate cuts by the Indian central bank.
ICICI Bank is India’s largest private sector bank and the rate cuts will trigger strong credit growth for ICICI Bank. The rate cuts will come at a time when the economy is improving, and this will drive credit growth for the bank.
Another big positive related to ICICI Bank is the company’s increase in CASA and retail deposit in the last few years. From 29% savings and current account as of March 2009, ICICI Bank’s savings and current account has increased to 44% as of September 2014. Further, the company’s retail deposits have increased to 75% as of September 2014 from 50% in March 2009. This is important as a higher percentage of CASA and retail deposits means that the bank’s net interest income margin is bound to improve. The company’s net interest margin has already improved from 2.64% in 2011 to 3.41% in the first half of 2015. I expect this improvement to continue.
Even from an asset quality perspective, ICICI Bank has done well in the last few years. From a net NPA ratio of 1.96% in March 2009, the company’s NPA ratio has declined to 0.96% in September 2014. After declining to 0.62% in March 2012, the NPA has increased in the recent past. However, this is not a matter of concern as the NPA still remains low and the increase in NPA was due to slowdown in the economy during the tenure of the last government.
Considering these positive factors and the probability of a multiple interest rate cut in 2015, I suggest ICICI Bank as a strong buy for the coming year.
The second stock that I expect to do well in the coming year is Eros International (EROS, Financial). The company is in the entertainment industry, which is still at an early growth stage in India. With the economy picking up, there is likely to be increasing consumer spending in the coming year and this will benefit Eros International. Other than the consumer spending, the growth in the Indian entertainment industry also remains robust and will support the company’s growth.
Coming to the specifics, Eros International is the leading co-producer, acquirer and distributor of Indian language films globally. In the last five years, the company’s revenue has grown at a CAGR of 12.7% and the company’s PAT has grown at a CAGR of 21.7%. I believe that the growth will continue and accelerate in the coming years.
The reason is India’s demographics and the penetration of the movie industry. India is a young country with a median age of just 27 years. A young population means greater demand for entertainment.
However, India’s theatre screen per million population is only 12 as compared to 117 for the United States, 77 for France, 45 for Germany and 30 for the U.K. Clearly, the Indian market is vastly underpenetrated and as the theatres grow on demand, the revenue per movie will also surge.
Besides the movie industry, India’s television penetration is also low at 61% compared to 98% for China and 90% for Brazil among emerging markets. With TV subscriber content on an increase, Eros is well positioned to grow its revenue from this segment as well.
In conclusion, Eros International has a huge untapped market and I believe that the company’s strong position in the Indian market will result in strong growth in the coming years. For 2015, a good pipeline of movies and strong consumer spending will drive growth for Eros International.
Investors can therefore consider these two quality Indian stocks for 2015. Both these stock have the potential to outperform the broader index.
