7 Growth Stocks to Benefit From a Mark Mobius-Like India
InvestorPlace - Stock Market News, Stock Advice & Trading Tips India's IT services industry includes growth stocks, focusing on artificial intelligence (AI), the internet of things (IoT), and the cloud....
Investors in search of growth stocks are taking a closer look at the recent words of renowned investor Mark Mobius. In early November, he reiterated his long-held sentiment that Indian stocks could generate significant returns in the coming years. Roughly half of his emerging-markets fund is invested in India and Taiwan. And he compares India with where China was around a decade ago in terms of economic development.
The information technology (IT) industry is a vital component of India’s robust economy, generating almost 8% of India’s GDP last year. Total revenue generated by the IT and business process management industry surpassed $191 billion in 2020, mainly due to the massive wave of outsourcing from foreign companies. Currently, more than 1,000 U.S. companies have set up shop and hired around 1 million people in India for a variety of tech-based jobs.
In recent years, India’s IT services industry has expanded into advanced areas such as artificial intelligence (AI), machine learning, the internet of things (IoT) and cloud systems. The U.S. remains the largest market for Indian IT services providers such as Infosys (NYSE:INFY), Cognizant (NASDAQ:CTSH), and Wipro (NYSE:WIT). Meanwhile, leading global IT names, such as Accenture (NYSE:ACN), IBM (NYSE:IBM), Deloitte and DXC Technology (NYSE:DXC), also have significant operations in India.
With that information, here are seven growth stocks that could gain significant traction from the strength of the Indian economy.
- Cheniere Energy (NYSEAMERICAN:LNG)
- Cognizant Technology
- Icici Bank (NYSE:IBN)
- iShares MSCI India Small-Cap ETF (BATS:SMIN)
- WisdomTree India Earnings Fund (NYSEARCA:EPI)
Growth Stocks: Accenture (ACN)
52-Week Range: $241.73 – $374.92
Dividend Yield: 1.07%
Accenture is a leading global IT-services group, providing consulting, technology, strategy and operational services to a wide variety of sectors, including communications, financial services, media and technology and consumer products.
Management issued Q4 results in late September. Revenue increased 24% year-over-year (YOY) to $13.4 billion. Net income came in at $1.44 billion, or $2.20 per diluted share, up from $1.31 billion, or $1.99 per diluted share, in the prior-year quarter. The company generated $2.2 billion in free cash flow during the period. Cash and equivalents ended the quarter at $8.17 billion.
After the announcement, CEO Julie Sweet remarked, “We are very proud of our outstanding fiscal 2021 financial performance, reflecting growth significantly above the market and strong momentum heading into fiscal 2022.”
New bookings hit a new record at $59.3 billion for the full year, representing a 20% YOY increase in U.S. dollars. Accenture’s cloud and interactive business segments are booming as an increasing number of companies move their networks to hybrid cloud services or enhance their online user experience. In addition, its Industry X segment, which helps factories and plants to utilize software and connected devices, is gaining traction from the expansion of the industrial IoT market.
Increasing exposure to tailwinds across the digital transformation markets make Accenture a solid investment. For fiscal year 2022, management anticipates revenue growth of 12% to 15% in local currency and adjusted EPS growth of 13% to 16%.
ACN Stock currently hovers at $361, up almost 39% year-to-date (YTD). However, shares look expensive at more than 36 times forward earnings and 4.7 times trailing sales. Potential investors could wait for a pullback toward $350.
Cheniere Energy (LNG)
52-Week Range: $56.09 – $113.40
Dividend Yield: 1.28%
Houston, Texas-based Cheniere Energy owns and operates the Sabine Pass liquefied natural gas (LNG) terminal through its stake in Cheniere Partners (NYSE:CQP). The company also owns the Corpus Christi LNG terminals and Cheniere Marketing, which markets LNG.
The energy group released Q3 results on Nov. 4. Revenue soared 119% YOY to $3.2 billion. Yet, net loss was $1.08 billion, or $4.27 loss per diluted share, compared to a net loss of $463 million a year ago. Cash and equivalents ended the quarter at $2.2 billion.
On the results, CEO Jack Fusco remarked, “Our strong third quarter results are the product of our operational excellence as well as the continued strength in the global LNG market.”
Cheniere Energy is benefiting from surging demand for LNG. The company has signed several long-term LNG sales and purchase agreements. Cheniere boasts a 20-year deal to supply 3.5 million metric tons of liquefied natural gas per year to Gail, India’s state-owned natural gas company.
Management recently confirmed its full-year 2021 distributable cash flow guidance of $1.8 billion and $2.1 billion. This figure is expected to go up to more than $3.1 billion in 2022. In addition, management plans to repurchase $1 billion of stock over the next three years and repay $1 billion of debt per year to secure an investment-grade credit rating.
LNG stock currently hovers at $104, up 74% YTD and more than 92% over the year. It is currently trading at 11 times forward earnings and 2.2 times trailing sales. Interested readers could consider investing around these levels.
Growth Stocks: Cognizant Technology (CTSH)
52-Week Range: $66.19 – $82.84
Dividend Yield: 1.18%
Teaneck, New Jersey-based Cognizant is a global IT services provider offering consulting and outsourcing services to large enterprises worldwide. The company was founded in India and still has many offices there. Its offerings include AI, cloud systems, IoT, intelligent process automation, among others.
Cognizant announced Q3 results on Oct. 27. Revenue grew 12% YOY to $4.7 billion. Net income came in at $544 million, or $1.03 earnings per diluted share, compared to $348 million, or 64 cents per diluted share, in the prior-year period. Cash and equivalents ended the period at $1.66 billion.
CEO Brian Humphries cited, “I’m pleased with our third quarter performance. While the industry faces an unprecedented competition for talent, we attracted a record number of employees to Cognizant, and stayed focused on delivering against our client commitments and our strategic repositioning.”
Q3 bookings surged 24% YOY, and YTD bookings growth was 13%. Companies are turning to consulting firms like Cognizant in their transition to cloud systems, AI, cybersecurity solutions and IoT. As a result, management expands operations in numerous international markets. Moreover, given its Indian roots, Cognizant is well-positioned to benefit from highly skilled yet relatively low-cost IT professionals in India.
Management forecasts full-year 2021 revenue to come in at $18.5 billion, representing roughly 10% YOY growth in constant currency. CTSH stock currently hovers at $81 per share, roughly flat on the year. The shares are trading at 18 times forward earnings and 2.4 times trailing sales.
Icici Bank (IBN)
52-week Range: $12.78 – $22.14
Dividend Yield: 0.27%
Mumbai-based ICICI Bank is the second-largest private bank in India in terms of total assets with a market cap of $67 billion. The bank generates most of its revenue from retail banking.
ICICI Bank announced solid Q2 results for fiscal 2022 on Oct. 23. The reopening of the Indian economy after the last wave of the pandemic led to soaring demand for loans. As a result, retail loans increased by 20% YOY during the quarter. Total deposits and net interest income grew by 17% and 25% YOY, respectively. Consolidated profit after tax increased 25% to $821 million, up from $657 million in the prior-year quarter.
Its digital and payments platforms provide significant tailwinds for ICICI. The bank extended the use of its mobile banking application, iMobile Pay, for non-ICICI Bank customers. Total customers registered on the app reached almost 4 million at the end of September.
Icici is a solid bet on India’s growing economy. The bank has seen significant improvement in its loan mix and asset quality. IBN shares hit an all-time high of $22.14 in late October. Shares currently hover at $19 territory, up 30% YTD. They are trading at 24 times forward earnings and 4.5 times trailing sales. A potential decline toward $18 would improve the margin of safety for long-term investors.
Growth Stocks: Infosys (INFY)
52-Week Range: $14.84 – $24.28
Dividend Yield: 1.77%
Bengaluru, India-based Infosys is India’s second-largest IT services company. The company provides consulting, technology, outsourcing and other digital services worldwide. Infosys leverages its offshore outsourcing model to generate roughly 60% of its revenue from North America.
Management issued strong Q2 FY22 results in mid-October. Revenue increased 21% YOY to $4 billion. Net profit was $733 million, or 17 cents per diluted share, compared to a net profit of $653 million, or 15 cents per diluted share, in the prior-year quarter. Free cash flow stood at $712 million. Cash and equivalents ended the quarter at $2.43 billion.
On the results, CEO Salil Parekh remarked, “Our stellar performance and robust growth outlook continue to demonstrate our strategic focus and the strength of our digital offerings.”
Infosys benefits from a thriving international service sector environment. Digital services constituted 56% of total revenue during the second quarter and delivered 42% YOY growth. In December 2020, Daimler (OTCMKTS:DMLRY) and Infosys announced a long-term strategic partnership for a technology-driven IT infrastructure transformation.
The company has seen broad-based growth across verticals and geographies, as well as surging adoption of digital transformation by clients. As a result, Infosys increased the fiscal 2022 forecast for annual revenue growth to around 17%.
INFY stock currently hovers at slightly below $23, up 34% YTD. It is currently trading at 34 times forward earnings and 6.8 times trailing sales. Potential investors could regard the $22 level as a better entry point.
iShares MSCI India Small-Cap ETF (SMIN)
52-Week Range: $38.55 – $64.05
12-Month Dividend Yield: 0.08%
Expense Ratio: 0.81% per year, or $81 per $10,000 invested annually
Out next discussion centers around an exchange-traded fund (ETF), namely, the iShares MSCI India Small-Cap ETF. It provides exposure to small-capitalization Indian equities. The fund was first listed in February 2012.
SMIN tracks the MSCI India Small Cap Index, and holds 262 stocks. The leading 10 names account for roughly 18% of its net assets of $404 million. In terms of sectoral breakdown, materials lead the ETF with 18.1%, followed by industrials (17.8%), financials (14.7%), information technology (11.6%) and consumer discretionary (11.5%).
The top growth stocks on the roster include energy giant Tata Power; chemicals and polymers manufacturer SRF; IT and consulting company MindTree; IT services stock Mphasis; air conditioning and engineering name Voltas; and media conglomerate Zee Entertainment Enterprises.
P/E and P/B ratios of the fund stand at 30.8x and 3.8x, respectively. The ETF is up more than 41% in 2021 and 57% over the past year. SMIN hit an all-time high of $64.05 in mid-October. Interested investors may consider a potential decline toward $58 as a better entry point.
Growth Stocks: WisdomTree India Earnings Fund (EPI)
52-Week Range: $26.45 – $39.33
12-Month Dividend Yield: 0.86%
Expense Ratio: 0.84% per year
Our final choice is another ETF. The WisdomTree India Earnings Fund invests in profitable Indian companies. Fund sponsors rely on firms’ earnings in the fiscal year prior to the measurement date used by the WisdomTree India Earnings Index. And earnings are calculated using net income.
EPI has 473 holdings. The top 10 names make up about 35% of net assets of around $1 billion. Financials lead on a sector basis (24.9%), followed by energy (17.3%), materials (14.9%) and IT (13.5%).
The largest holding, at 7.84%, is India’s largest private sector group, Reliance Industries, which has operations in retail, media, entertainment, digital services and energy. Then, we see Housing Development Finance, India’s leading housing finance provider; Infosys; ICICI Bank; IT and consulting heavyweight Tata Consultancy Services; and NTPC, India’s largest utility company. Plenty of growth stocks on the list.
EPI returned close to 26% this year and 40% in the past 52 weeks. A potential decline toward $36 would improve the margin of safety.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
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