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Three India ADRs Worth Owning

Stocks in this article: TTM HDB IBN

Over the past year, India's benchmark BSE Sensex appreciated 64.6%, much more than the 27.8% and 48.1% increases in the Shanghai SE Composite Index and the Hang Seng Index, respectively.

The Indian equity markets are trading at a relatively attractive price-to-earnings ratio of 16.8 compared with 18.3 of the Shanghai Composite Index. This has triggered a wave of overseas investments into the Indian equity markets, driving the benchmark Sensex to around the 18,000 level for the first time since early 2008.

ADR Stock Picks

India's technology sector is largely leveraged to exports and is therefore dependent --to a large extent -- on a broad-based global economic recovery. On the other hand, sectors such as banking and automotive are driven largely by surging domestic demand and, as a result, are more likely to be the clear winners this year.

We expect HDFC Bank (HDB), Icici Bank (IBN), and Tata Motors (TTM) to outperform other ADRs and their domestically listed sector peers.

Indian Economy on a Roll

According to the Ministry of Statistics and Programme Implementation, India's industrial production grew 16.7% during January 2010 compared to the U.S. industrial production growth of 0.8% in the same month.

The economy may have expanded between 8.25% and 8.75% during the year ended March, says India's Finance Minister Pranab Mukherjee, adding that the country's GDP probably expanded 7.2% last fiscal year, "which is impressive by global standards."

The IMF estimates India's economy to grow by 7.7% in 2010 and 7.8% in 2011, well above the estimated U.S. economy growth of 2.7% and 2.4%, respectively. Moreover, inflation in India is estimated to decrease from 8.4% in 2010 to 4% by 2012. In comparison, China's economy is estimated to grow 10% in 2010 and 9.7% in 2011. However, both China and the U.S. are set to witness an increase in inflation during this period, according to IMF estimates.

Banking Pick: HDFC Bank and Icici Bank

The global crisis led Indian banks to address efficiency factors such as cost management, asset quality improvement, and to build liability franchises. Top banking executives told India's Central Bank last week that credit growth is expected to be around 20% during the current fiscal.

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