Every once in a while, it's time to step back and admit that you backed the wrong horse. At least that's what Vice President Joe Biden and Secretary of State John Kerry have been coming to terms with this month during repeated trips to India, where the pair struggled to assuage their host's concerns about our ally and their mortal enemy-Pakistan. Their hope is that repeated visits will encourage the Indian government to make pro-business reforms as elections approach.
India and Pakistan have had a tenuous relationship since the Partition of India by Great Britain in 1947. Repeated conflict over the Kashmir region has cultivated a general sense of antipathy between the two, and led to the development of one of the most militarized borders in the world. So the fact that America sends more foreign aid to Pakistan than anyone else, and is their second largest munititions contributor, has complicated US efforts to collaborate with India, an important emerging market and the second most populous country in the world. The overwhelming hope is that Biden's visit will help American and other multinationals make headway into this market of 1.2 billion people, which is seen by some as a key to understanding the challenges presented by emerging economies.
Economic growth has stalled in India, something which is beginning to worry the companies who have invested there. When growth was high, they were less daunted by India's infrastructure and corruption problems that the Indian government shows little sign of addressing. However, foreign direct investment (FDI) in India is only a little more than half of what it was five years ago, and yearly growth, which was 9.7% back in 2007, is now less than five percent.
The problem that foreign investors face is that members of the rapidly expanding Indian upper and middle classes are ready for high-quality products even though they are only willing to spend about 30% as much for them. Couple this with the requisite bribes, under-the-table costs, and lax intellectual property laws that come with doing business, and you have a major cost-cutting problem to which few companies have been able to adapt.
McDonalds (MCD) is probably a leader in this area. A menu for one of the firm's Indian restaurants omits many of the traditional offerings, replacing them with things like the "McSpicy Paneer," and other vegetarian items that are designed to suit the region's unanticipated costs as well as the residential palate. Companies such as Siemens (SI) and Unilever (UL) have purchased multi-billion dollar afffiliates in India - and the country accounts for almost half of the market value of British American Tobacco (BTI).
To evaluate the potential recovery of Indian markets, we ran a screen on stocks that have large FDI in India, and compared them with companies who have recently decided to challenge the Indian government on its anti-business policies, such as Vodafone (VOD).
On an unrelated but equally interesting note, while trying to win over India's business and political elite, Biden still found time to put his foot in his mouth.
Will investments in the Indian market continue to be profitable? Use the chart below to begin your own analysis.
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1. McDonald's Corp. (MCD, Earnings, Analysts, Financials):Operates as a foodservice retailer worldwide. Market cap at $97.02B, most recent closing price at $96.76.
2. Vodafone Group plc (VOD, Earnings, Analysts, Financials):Provides mobile communications in Europe, Africa, the Asia Pacific, the Middle East, and the United States. Market cap at $146.42B, most recent closing price at $29.84.
3. British American Tobacco plc (BTI, Earnings, Analysts, Financials):Engages in the manufacture, distribution, and sale of tobacco products. Market cap at $102.55B, most recent closing price at $106.43.
4. Unilever plc (UL, Earnings, Analysts, Financials):Provides fast-moving consumer goods in Asia, Africa, Europe, and the Americas. Market cap at $118.04B, most recent closing price at $41.70.
5. Siemens AG (SI, Earnings, Analysts, Financials):Operates in the industry, energy, and healthcare sectors worldwide. Market cap at $92.81B, most recent closing price at $110.03.
(List compiled by James Dennin. Analyst ratings sourced from Zacks Investment Research, all other data sourced from Finviz.)
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Dig Deeper: Access Company Snapshots, Charts, FilingsMcDonald's Corp.(MCD, Chart, Download SEC Filings) Vodafone Group plc(VOD, Chart, Download SEC Filings) British American Tobacco plc(BTI, Chart, Download SEC Filings) Unilever plc(UL, Chart, Download SEC Filings) Siemens AG(SI, Chart, Download SEC Filings)
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