American investors looking to diversify their portfolio to include foreign company stocks can easily do so by purchasing shares of foreign companies that are listed on the NASDAQ, NYSE, or other American exchanges. Among foreign investment destination, India has emerged as a destination of choice for global investors with robust economic growth and promising investment opportunities observed over the last decade.
More than a dozen Indian stocks are listed on the American stock exchanges allowing U.S.-based investors a convenient way to invest in Indian companies. Such stocks are listed directly, or as an American Depositary Receipt (ADR).
- India has quickly become a prime destination for investors looking for diversification.
- There are ways for investors to buy Indian stocks, including American Depositary Receipts (ADRs) and those that have their own listing on the major exchanges in the U.S.
- Some of the biggest companies in India have performed nicely of late, including Infosys (INFY) and ICICI Bank (IBN).
- Indian companies should perform well going forward as the country continues economic development.
For instance, shares of the online travel company MakeMyTrip Ltd. (MMTY) are listed and traded on the NASDAQ stock exchange without being available on any Indian stock exchanges, while HDFC Bank has its shares listed and traded on Indian stock exchanges as well as on NYSE through the ADR route.
Issued by a U.S. bank, an ADR is a dollar-denominated security that represents a specified number of shares in a foreign stock that is listed and gets traded on a U.S. exchange. Simply put, a custodian bank in the U.S. holds the Indian shares and in turn issues locally traded ADR shares in a pre-specified ratio to the number of Indian shares it holds. For instance, the NYSE-listed HDFC Bank ADR typically represents three equity shares of the India-listed HDFC Bank shares.
Below are five of the largest Indian companies trading in the American markets. Returns generated from the stocks are compared to those generated from the Invesco India ETF (PIN)—an ETF tracking the Indus India Index, a country-specific benchmark index that tracks top 50 Indian stocks from such sectors as information technology, health and financial services, and consumer products, among others. The Invesco India ETF has risen 3.5% year-to-date as of Nov. 14, 2019.
1. Infosys Limited (INFY)
Infosys has a $43.1 billion market cap and its shares are up 2.5% in the last year. The Indian IT bellwether was incorporated in 1981 and is considered a behemoth among the technology sector companies of India. Along with its subsidiaries, it engages in consulting, technology and outsourcing services which cover application development and maintenance, infrastructure management, product engineering, systems integration, life cycle solutions, and business process management.
After the top-management churn observed a few years ago, leading to high volatility in its stock price, Infosys emerged among the top-performing Indian stocks. The company benefited from its focus on Agile-based methodology and AI-driven core services which helped it secure big-ticket projects from clients operating in telecom, utilities, retail, insurance, and manufacturing sectors.
Infosys’ key partnership with Alphabet Inc.’s Google (GOOGL) to offer cloud transformation and migration services is expected to give it a leg up in the emerging segments of artificial intelligence, machine learning, computation, and analytics.
2. ICICI Bank Limited (IBN)
ICICI Bank is a $44.5 billion market cap bank that has seen its stock up 34% in 2019. Established in 1994, the largest private bank in India offers a variety of banking and financial services. They include retail and commercial banking, working capital financing, project, and corporate financing, investment banking, venture capital and private equity, insurance, broking, and treasury products.
ICICI’s shares have risen nicely over the last few years. The stock got another boost this year when it managed to post higher profit levels in October when second-quarter fiscal 2019 results indicated net quarterly income attributed to improvement in loans and deposits.
3. Dr. Reddy's Laboratories Ltd. (RDY)
The Hyderabad, India-based leading pharmaceutical company was incorporated in 1984 and operates as an integrated pharmaceutical company globally. With a $6.6 billion market cap, it manufactures and markets prescription and over-the-counter finished pharmaceutical products. It also caters to biologics business, provides contract research services and manufactures and sells active pharmaceutical ingredients and steroids. Shares are up 8% this year.
The stock hit a multi-year in the summer of 2018 July when a US court granted a preliminary injunction blocking Dr. Reddy’s from selling generic versions of opioid addiction treatment in the U.S. The company later recovered when it managed to win the case allowing sale of its generic version of Suboxone, a much-needed treatment of opioid use disorder. Given the opioid epidemic that has gripped America owing to the drug abuse, a potentially large market is available for Dr. Reddy’s.
4. HDFC Bank Limited (HDB)
The second-largest private bank of India was established in 1994 and has a $52 billion market cap. It offers a host of banking services spanning operations across treasury, retail banking, wholesale banking, brokerage, and other banking businesses. Shares are up 21% for the year.
While the bulk of Indian banks came under fire owing to an increase in non-performing assets (NPA), HDFC did relatively better by having a low bad-loan ratio. It was successful in containing its exposure to the debt-laden Indian corporates and lending to the country’s burgeoning middle class.
Expectations of strong growth in loans from several sections of retail, MSME, and corporate, and a strong balance sheet of the bank has made the stock an attractive choice.
5. WNS Holdings Limited (WNS)
WNS Holdings, with a $3.2 billion market cap, operates as a global provider of business process management (BPM) services that span across voice, data, analytical, and business transformation. Its primary clients belong to the sectors of banking and financial services, insurance, travel, utilities, retail and consumer product groups, healthcare and auto claims. The stock is up 51.5% this year.
The stock of WNS has been on a big run, with the recent upward move lasting three years. Granted, the emergence of stronger players with cloud technologies and artificial intelligence-based automated process management has put a big question mark on the viability of the business model of companies like WNS.
Additional concerns around the fluctuation of the Indian rupee-dollar exchange rate and the adverse implications of Brexit on the company could weigh heavy as well. While low BPO penetration and the need for more digital transformation are suitable opportunities for the company, it may face challenges from automation and robotics-powered industry.
Investing in Indian Stocks
Investing in foreign stocks allows a wide range of opportunities to investors looking to reap the benefits of high growth potential available in foreign companies. While increasing exposure to international equities can add the benefits of diversification, each individual company and the country within which it operates carries unique risks. 2020 will be a key year as India continues with geopolitical developments, which could keep pushing key stocks higher.