This Company May Become the Tesla of India
Last week, I named India as “The Next Great International Growth Market.” My reasoning was simple. India recently surpassed China as the most populous country in the world. Its middle-class is young and expanding rapidly, which will fuel consumer spending for decades to come.
In that article, I recommended the iShares MSCI India ETF (INDA) as an easy way to participate in India’s economic growth. It owns a little bit of everything, with exposure to all 11 GICS (global industry classification standard) sectors.
The Financial Services sector accounts for nearly 27% of the fund’s total assets. Information Technology stocks are the next largest sector holding at 13%, with the Energy sector next at 12%.
As I said last week, “Roughly half of the fund’s assets are invested in money, computers, and oil. That’s a good mix for a nascent consumer economy.” There is no way India’s economy can grow without those sectors getting a big piece of the action.
However, that does not necessarily mean that the best individual stocks will come from those categories. Safe bets tend to have a lower payout than riskier investments. It’s a true in India as it is in the United States.
That’s why electric vehicle (EV) manufacturer Tesla (NSDQ: TSLA) has appreciated more than 900% over the past five years while the SPDR S&P 500 ETF Trust (SPY) has gained 72% over the same span.
Sure, a 72% gain in five years is nice. But what’s even nicer is getting twelve times that return! And right now, I think there are some individual stocks in India that will do just that in the decade to come, including a company that I believe is on its way to becoming the Tesla of India.
Pent Up Demand
I have never been to India so I cannot speak from personal experience. But those who have been there tell me that its public transportation system is a nightmare. According to them it’s slow, it’s dirty, and it’s unsafe.
At the same time, the percentage of households in India that own a car is estimated at less than 10%. That might be okay if India’s public transportation system were a model of efficiency, but it’s not.
For that reason, there is substantial pent-up demand for private automobile ownership in India. And if there is one thing middle class consumers like to buy as soon as they can afford to, it’s cars.
In the United States, where the middle-class population expanded rapidly after World War 2, more than 90% of households now own at least one automobile. It’s about half that rate in China, whose middle-class population didn’t take off until the turn of the century.
If I were going to buy only one stock to participate in India’s economic growth over the next decade, it would be Tata Motors Limited (TATAMOTORS.NS). Tata is India’s largest domestic automobile manufacturer and controls 72% of that country’s EV market.
Last month, Tata announced its results for the quarter ended June 30. Total revenues jumped 42% on a year-over-year basis, while its EBITDA (earnings before interest, taxes, depreciation and amortization) soared by 177%.
If you think that pace will be difficult to maintain, consider this. Tata’s 72% EV market share equates to just 34,000 vehicles sold in a country of 1.4 billion people.
Folks, this could be going on for a long time. Of course, Tata’s share of the EV market will gradually decline as it expands but it will still be a very big number.
It may take a long time for Tata’s rivals to catch up. In 2022, Tesla’s share of the EV market in the United States was 65%. And that’s after every major carmaker in the world entered that market.
Those same companies may find it more difficult to compete in India. The country is highly fragmented, with cultural idiosyncrasies that require customized marketing strategies.
Tata is well aware of that and has organized its operations accordingly. It is building a network of branded service and charging stations throughout India to support its sales efforts.
Perhaps the biggest challenge for American investors is being able to buy stock. That’s because Tata voluntarily delisted its American Depositary Shares from the New York Stock Exchange at the start of this year.
Now, Tata only trades on the BSE (formerly known as the Bombay Stock Exchange). And to do that, you must open an account with a broker licensed in India. You can do it, but it isn’t easy.
That’s a shame because Tata is on a roll. So far this year, it has gained more than 50% and is up nearly tenfold since bottoming out three years ago in the aftermath of the coronavirus pandemic. I think Tata is in the early stages of a long run up the charts.
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Jim doesn’t worry about market mayhem…he methodically makes money from it.
Jim Pearce is chief investment strategist of our premium trading service, Mayhem Trader. Jim has developed an under-the-radar strategy to flip market mayhem into fast payouts. Want to learn more? Click here now.