Investing in India

Did you know that to invest in Indian companies, you have to meet scrupulous conditions unless you are an Indian resident or a non-resident Indian? That makes investing in the country more challenging than investing in US or UK companies.

Thankfully, here’s one that has an American Depository Receipt (ADR), and it’s listed on the New York Stock Exchange. Its name is Infosys (NYSE:INFY).

This is a business of information technology services, with nearly 250,000 employees. What’s clever about it is that it acts as an offshore outsourcing model to generate 60% of its revenue from North America. It caters to the full breadth of industries in the world, and it’s specifically effective at consulting, operations management, cloud services, and business processes.

Why I’m buying it

Here are the main reasons I’m going to buy a stake in Infosys. First, it meets my all-star criteria. Second, the price is down 30% from its all-time high. Third, it has a moat in cost-effective IT services, although I’ll discuss why this is being threatened.

I know its net margin has been down a bit recently, but it’s still high, at 16%. Also, just look at how its revenues have been growing:

It looks to me like the pandemic was heavy-hitting for Infosys, but it managed to maintain top-line growth nonetheless. Its balance sheet also took a hit, but still, at this time, it’s got plenty more equity than debts.

The risk of AI

Astute readers will understand that Infosys’ moat in cheap human-led IT services is being directly threatened by new companies with the same offerings run by artificial intelligence.

However, Infosys’ management is clever. It recently introduced a comprehensive suite of AI-led tools underpinned by “12,000 AI assets, more than 150 pre-trained AI models, and over 10 AI platforms”.

Nonetheless, this new age brings cost efficiencies on-shore. Domestic AI providers in the US may find themselves gaining market share against Infosys. It’s a tricky economic puzzle to crack, and who wins over the long term is likely to be both parties, in my opinion.

I think American AI-services companies will grow fast now. And Indian IT services that also use AI will continue to grow, but just slightly slower.

A share price on the move

I mentioned that investor sentiment is important for the business to meet my all-star criteria, and Infosys has gained 174% in price over the past decade. That indicates high levels of interest in the shares over the long term. In fact, its compound annual growth rate in price over the past decade is 10.6%.

At a time when the Indian economy is going through such significant growth, I believe getting a stake in an Indian firm is paramount for me. Infosys is in my industry of expertise, so it only makes sense that I become a shareholder.

The post I consider this an all-star investment that I’m buying for my Stocks & Shares ISA appeared first on The Motley Fool UK.

Companies with exposure to emerging markets often receive less attention, presenting some amazing opportunities. As a result, I’ve explored three interesting markets, and outlined my favourite opportunity in each.

China

There is no doubt that investing in China has positives and negatives. However, there are some quality value stocks if investors can look beyond the risks. One of the features that draws me to Chinese companies is diversification. Many do not offer a single product, but instead a range of connected services. As a result, this brings a great deal of flexibility, pricing control, and brand recognition.

My favourite example is Tencent (SEHK:700). The company operates across a tremendous range of sectors, including:

• Social networking and communication
• Entertainment, music and gaming
• Information, news and maps
• Payment platforms
• E-commerce
• Cloud services and AI

As a result, Tencent’s fundamentals are incredibly strong. With a price-to-earnings (P/E) ratio of 16.3 times, it is notably below rivals Meta at 24.5 and Alphabet at 23.2 times.

Furthermore, by operating many platforms users are likely to use daily, Tencent has the agility and brand loyalty that companies operating a single platform cannot compete with.

India

In recent years, India has become a hotbed of innovation, particularly in technology and e-commerce. A value stock with huge exposure to India is Infosys (NYSE:INFY). Infosys is a multinational IT services and consulting company that provides business consulting, information technology, and outsourcing services. It has highly competitive fundamentals, such as a P/E ratio of 21.1 times, lower than the sector average of 27 times.

Another interesting metric is return on equity (ROE), which shows how efficiently management are able to generate profit from investment. Compared to the industry average of 8.2%, the company’s 32.3% looks very impressive. Specifically, this efficiency can be contributed to innovation. Infosys has a dedicated research and development team, and clear focus on emerging technologies like AI and blockchain.

Mexico

Coca-Cola FEMSA de México (NYSE:KOF) is a beverage company in Mexico and Latin America. It produces and distributes a wide range of beverages under various brands, including Coca-Cola, Sprite, Fanta, and Powerade.

This value stock has large exposure to the Mexican market. It holds a market share of over 60%, and has expanded into other Latin American markets, including Brazil, Colombia, and Argentina. Revenue has grown consistently, reaching over $220bn in 2022.

The company has solid fundamentals with a low debt-to-equity ratio and strong operating cash flow. Furthermore, the P/E ratio of 16.6 times is considerably lower than the sector average of 32.7 times.

There are a number of challenges in the beverage industry, including changing consumer preferences and increasing health concerns. However, the company is well-positioned to maintain its market leadership and continue growing. Further growth will be driven by strong brand recognition, efficient distribution network, and focus on innovation and sustainability.

Should I buy?

Recent years have shown us that diversification across sectors and markets is critical. Having exposure to emerging markets and finding quality companies is a core part of my strategy over the next decade. I will continue to buy such value stocks.

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