With Indian Prime Minister Narendra Modi's Bharatiya Janata Party set to secure an outright victory in the race to lead the world’s largest democracy and seventh-largest economy, many challenges and opportunities lie ahead for India.
Having recorded 7% annual growth in March, the India Brand Equity Foundation said the country is the fastest-growing economy in the world and predicted to be one of the top three economic powers within 10 to 15 years.
Despite the growth, consumer consumption, which constitutes 61% of gross domestic product, has been weakening with other cracks starting to show in the Indian economy, creating a ripple effect on investments. Modi’s party ran on pledges to spend billions on social welfare policies, which may cause the country to miss, once again, its fiscal deficit target of 3.4% of GDP.
So as Modi prepares for his second five-year term, the forex markets reacted positively to the news with increased volumes of trading. The rupee hit a two-week high against the U.S. dollar. When the dust starts to settle and Modi’s government is called upon to carry through on its election promises, investors should be taking a closer look at India. Here are a couple options.
Britannia Industries Ltd.
Founded in 1892, Britannia Industries (NSE:BRITANNIA, Financial) produces Indian food products. Headquartered in Kolkata, it is one of India's oldest existing companies and is owned by The Wadia Group.
Trading around 2,840.10 rupees ($40.94) on May 23, there is some daylight between its current stock price and its Aug. 24, 2018 high of 3,386.73. Shares tanked to 2,649.50 rupees on May 8 following the news that Ness Wadia, Britannia promoter and son of owner Nusli Wadia, was sentenced to a two-year prison term for drug possession. However, the stock has rebounded since then.
The largest food manufacturer in India has a debt-to-equity ratio of 0.043, which is impressively low. The last year has seen Brittania record a 30% return on equity, while the average company in the food industry in India stands at 8.9%. With modest debt, Britannia Industries should see expansion through acquisitions under Modi’s liberal economic policies.
Ultratech Cement Ltd.Â
Founded in 1983, Ultratech (NSE:ULTRACEMCO, Financial) is an Indian cement company based in Mumbai.
The stock has climbed 9.33% over the last four weeks and 18.92% over the last six months.
Annually, it posted consolidated revenue growth of 16% and appears to be in good shape with robust demand in affordable housing projects fueling 14% year-over-year growth in volumes.
Although India hasn’t officially published employment data for over two years, a leaked statistics report put the unemployment rate at 6.1%, a 45-year high. Modi’s government will need to ensure there are jobs for the 1 million new entrants to the Indian workforce. It is more than likely that spending on infrastructure and the housing-for-all scheme will increase, which provides a strong opportunity for further growth for Ultratech.
Disclosure: The author does not have any positions in the listed equities.
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