India a Rising Superpower- ICICI Breaks Out
One of the major investment themes here at Outsider Club is the global decoupling from China.
The idea is that the supply chain debacles of the COVID-19 years coupled with the autocratic hand of President Xi and the ongoing tech feud with the U.S. means that global multinationals are looking for new places to do business.
Places like Thailand, Vietnam, Indonesia, and Mexico have benefited from this factory diaspora.
And perhaps the biggest winner is India.
India has many positives. They have a middle class that includes roughly 300 million people. They also have the rare benefit of a growing working-age population.
The population pyramid in India is perfect for economic growth. Half of Indians are under the age of 25. By 2030 one-fifth of the working-age people in the world, those between 18 and 64, will be Indian.
Over the last ten years, 400 million people have earned their way out of poverty.
Furthermore, India’s stock market just surpassed Hong Kong as the fourth largest in the world and the latest GDP growth number came in at 8.4%.
The economy is booming with strong government and consumer spending as well as a robust service sector. This is in spite of the central bank hiking interest rates six times since 2022 to slow inflation. And inflation has dropped to 4.85% in March.
The government of Prime Minister Modi is pro-business and has ramped up its spending on infrastructure. Furthermore, foreign businesses are dumping more cash into the country to build factories, especially in tech.
The manufacturing sector expanded by 11.6% last year.
Major international banks such as Barclays Plc and Citigroup Inc., have raised their full-year projections on India.
The Subcontinent Strikes Back
The old advice when buying a fast-growing, emerging market was to buy the large companies like the telecoms, the banks, and the oil companies. The idea is that there are only so many liquid companies and that all the mutual funds and ETFs will buy the blue chips and drive them up.
What I like to do is find the companies that trade in New York in the form of American Depository Receipts (ADR) and pick from that list using basic value metrics like PEG ratios.
Out of the 10 or so large Indian companies that you can buy with a normal brokerage account I like ICICI Bank (IBN) which is the second largest bank in India.
Lastest Earnings
IBN grew earnings in Q4 by 17.4% from Q4, 2022. Net income for the year jumped 28.2%. This growth should accelerate due to future interest rate cuts by the central bank. Loans increased by 16.2% and deposits grew by 19.2%.
The reason for this growth is due to government incentives to open bank accounts and streamline payment systems. Over the last ten years, the percentage of Indians with bank accounts increased from 42% to 80%.
IBN has a market cap of $93 billion and has $1.63 trillion in cash. They have a forward p/e of 17 and with that 28% earnings growth rate that gives you a PEG ratio of 0.65 which is pretty cheap. Anything below a 1 is considered a buy.
The company is also a leader in digital banking for both retail and corporate customers. Since September they have signed up 10 million people to their iMobile Pay from non-ICICI Bank users. Volume is up 29% and the amount of each transaction is up 16%.
Here is the one-year share price chart:
As you can see we have broken out of an ascending triangle which is bullish. Given the consolidation over the past 18 months and its history of jumping 30% on a breakout, this stock should be trading at around $34 in a few months.
Buy ICICI Bank (IBN) at the market with the idea you will hold it for the next five years.
All the best,
Christian DeHaemer
Outsider Club
