Note: Videsh Sanchar Nigam Ltd. (VSL) is now called Tata Communications (TCL)

As far as I am concerned the only Indian ADR worth looking at this point is Sterlite (SLT). ICICI Bank (IBN) and HDFC Bank (HDB) are also worth considering but I would wait for a little better entry point.

As far as other ADR’s are concerned, I don’t see anything exciting at this moment. Let me know if you think otherwise. Any ideas would be welcome.

ETF’s/ETN’s/CEF’s

The recent launch of Wisdomtree India ETF (EPI) looks better than the India IPATH ETN (INP). Energy plays a bigger role in EPI and technology plays a bigger role in INP.

The Powershares India ETF (PIN) is about to launch as well. The ETF pick might end up being between Powershares India ETF vs. Wisdomtree India ETF.

Although the Indian markets have been hit by the turmoil here in the United States, India still remains an attractive investment destination. It’s certainly good to see the launch India ETF’s to give people more choices to invest in India.

Full Disclosure: I am long Sterlite (SLT)

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The companies that targeted the local Indian consumers and the local Indian market emerged as the clear winners in 2007. 

Telecom and Banks led the way.  However, technology companies that depend on western markets such as United Sates under-performed during the year. 

The two Indian Internet plays, Sify (SIFY) and Rediff (REDF), are looking more like Lycos and Excite.  These two stocks are showing no signs of life and I am not sure 2008 will be any better.  Internet in India still hasn’t emerged as people expected it to.  You can’t go just by numbers and growth figures. Broadband is still a dream for most consumers in India.  I am planning to write about this topic soon so I will leave the bulk of my thoughts for that article. 

Tata Motors (TTM) and Dr. Reddy’s (RDY) basically went no where but still look promising for 2008 and beyond.  Tata is still waiting on the Jaguar and Land Rover decision and the Rs. 1 Lakh ($2500) car is supposed to be launched in 2008. 

The newly listed Sterlite (SLT) has almost doubled since it’s IPO.

Now the best way to get exposure to Indian Market was via an Indian ETF or CEF’s.  INP led the way with a 86% return in 2007. 

Unfortunately, lots of great Indian companies are not listed in the United States and the best way to play the Indian market might as well be INP.  However, with Sensex near an all-time high you want to time your entry well. 

With the Indian economy booming and as the ever increasing middle class continues to see their purchasing power increase, investing theme for 2008 is pretty clear.  Invest in Indian companies that target the local market rather then ones that depend on western markets. 

2008: The year ahead

Find good entry points for:

• HDFC Bank (HDB)
• ICICI Bank (HDB)
• INP (ETF)
• Sterlite (SLT)

** Dividends not included

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Indian Stocks Weekly and YTD Price Change – Week ending November 02, 2007:

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Just look at some of the gains this week. 

• VSL up 28%
• HDFC Bank (HDB) up 19%
• Sterlite (SLT) up 20%
• ICICI Bank (IBN) up 21%
• INP, IIF and IFN all up around 12%

* Dividends not included

Indian Stocks Weekly and YTD Price gains – Week ending October 26, 2007:

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Also, I just noticed that the one stock that no one talks about (including me) is the Telecom Giant Videsh Sanchar Nigam Limited (NYSE: VSL).  VSL is up about 44% YTD.

The Indian markets have mostly been driven by Indian Stocks not listed here in the United States.  The only US listed stocks that have participated in this run are ICICI Bank (IBN), HDFC Bank (HDB), newly listed Sterlite (SLT) and Videsh Sanchar Nigam Limited(VSL). 

Investors who put their money in the Indian ETF, IPATH ETNS (INP), have done pretty good with gains of 54% YTD.  Obviously, INP gives you the exposure to the overall Indian market. 

The two Indian Closed end funds, IIF and IFN, are trading at about 10% discount even after their recent run.  It’s seems pretty obvious that investors prefer INP over IIF and IFN. 

Indian Stocks Weekly and YTD Price Change – Week ending October 12, 2007

*At the time of this writing I don’t have a position (long or short) in any of the stocks listed above.  Subject to change anytime

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The best way to invest in the Indian economy is via the two India banks HDFC Bank (HDB) and ICICI Bank (IBN) and the India based ETF (INP).  All three have roared back along with the Sensex after going down with the overall market.  Being patient and finding a good entry point is the key here. 

* No position in HDB, IBN and INP.  Subject to change anytime. 

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• Morgan Stanley India Investment Fund (IIF) is trading at a 11.77% discount
• India Fund (IFN) trading at 10.64% discount

Data: ETFConnect.com

However, iPath MSCI India Index ETN (INP) is near its 52-week high and has outperformed the India CEF’s in 2007

Click on image to expand

* No holdings in IIF, IFN or INP

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I wrote in my Weekly Indian Stock Report, published Sunday, that a short-term downtrend was imminent for the Sensex. What I didn’t know was the big drop will happen Monday. Sensex, which consists of 30 stocks, actually dropped 537.76 points before recovering a bit to close down only 400 points.

Banks led the decline in Bombay as ICICI Bank and HDFC Bank went down 6.5% and went 4.7%, respectively. However, Tata Motors and Dr. Reddy’s only saw modest declines.

Decline in Bank stocks was caused by Reserve Bank of India’s (RBI) decision to tighten liquidity by raising the cash reserve ratio (CRR) of Banks.

As it turns out Rediff (Nasdaq: REDF) was the only Indian stocks that ended the session in green. I have no idea what’s behind the strength in Rediff lately although the buyout rumors could have something to do with it. It should be noted that Rediff (Nasdaq: REDF) and Sify (Nasdaq: SIFY) do not trade in India. So these two stocks wouldn’t be affected as much as others. The price action today in the two Indian Internet stocks justifies that sentiment as well.

I would be very careful in buying any Indian stocks right now, specially the two CEF’s IFN and IIF. Also, ICICI Bank and HDFC Bank have been on such an incredible run that they might have the most downside at this point.

Long term I am confident in the Indian markets but short term there is downside.

The stock to pick up if there is more downside:

• Either HDFC Bank (NYSE: HDB) or ICICI Bank (NYSE: IBN)
• Tata Motors (NYSE: TTM)
• Dr. Reddy’s (NYSE: RDY)
• Infosys (Nasdaq: INFY)
• One of these two Closed End Funds (CEF’s):

• The Indian Fund (NYSE: IFN)
• Morgan Stanley India Investment Fund (NYSE: IIF)

Performance of Indian Stocks on Monday







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