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Why I’m Still Bullish On Diageo plc

Looking back at history, it has not been a smooth and trouble-free journey for any major economy across the world.

Indeed, countries such as the US, UK, Japan and other more developed economies have had major problems along the way. They have suffered from countless recessions, depressions, oil shocks and other major events along the road to economic prosperity.

So, the recent news surrounding India and the present difficulties that its economy is experiencing are not hugely surprising to me.

Indeed, recent news included the fact that the Indian rupee fell to a new record low as concerns surrounding the budget costs of new food subsidies added to wider concerns over the country’s overall economic outlook.

Furthermore, there are fears surrounding the impact of the Federal Reserve’s much-talked-about tapering and its potential effects upon emerging economies such as India. Such tapering, it is thought, could draw investors away from developing economies, such as India, and towards more developed economies, such as the US.

Such a move could put further pressure on India’s foreign exchange reserves, which have fallen by around $14bn over the last six months.

However, I think that the long-term outlook for India remains strong, especially for companies such as Diageo (LSE: DGE) (NYSE: DEO.US).

It has recently bought a large stake in India’s United Spirits and is hoping to build a much larger presence in what is the biggest consumer of whisky in the world.

Indeed, with Diageo owning various whisky brands such as Johnnie Walker, the idea is to gain a foothold in India and, as the country and its citizens become wealthier, Diageo will be in pole position to benefit from higher disposable incomes and sell more units of its higher margin, premium brands.

Certainly, the road to achieving that goal will not be a smooth one and there will be difficulties along the way. However, I believe that Diageo and its exposure to developing markets such as India could be a real benefit for investors.

Furthermore, shares are not hugely expensive despite the favourable long-term exposure that Diageo has. Shares trade on a price-to-earnings (P/E) ratio of 18.9, which is higher than the FTSE 100 P/E of 14.8 but lower than the beverages sector P/E of 20.4.

In addition, Diageo has impressive growth prospects, with earnings per share forecast to increase by 9% in the next year alone.

Of course, you may already hold Diageo or be looking for another idea that could give your portfolio a boost.

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> Peter does not own shares in Diageo.