Thursday, January 14, 2010 0 comments ++[ CLICK TO COMMENT ]++

Investing in India through some Japanese companies

I ran across a MarketWatch article that highlighted two Japanese companies that are set to profit if India does well. I'm always wary of these indirect strategies suggested by analysts but it's something to consider if one is looking to invest in India without paying the historical premium for US-listed Indian stocks:

Investors looking for an easy way to invest in India's fast-growing market can get it via the shares of select companies in the developed market of Japan, analysts say.

"For the last decade, India has been associated, in the minds of Japanese investors, with motorcycles and small cars," said Macquarie Securities analysts Shih-Han Huang and Peter Eadon-Clarke in a recent report. "The last 18 months, however, have seen major strategic acquisitions in the pharmaceuticals, telecom and steel sectors."

Their two principal India-related Japanese recommendations are pharmaceutical giant Daiichi-Sankyo Co. (TSE: 4568; OTC: DSKYF) because of the strategic benefits from its acquisition of a majority stake in Ranbaxy Laboratories Ltd. (OTC: RBXLF); and steel maker JFE Holdings Inc. (TSE:5411; OTC: JFEEF) because of the benefits of the overseas expansion business plan through its strategic alliance with JSW Steel Ltd.

Macquarie rates both Japanese companies as outperform.

"The strategic attractions of Ranbaxy to Daiichi-Sankyo relates to Ranbaxy's distribution network throughout emerging markets," they said.

Ranbaxy is a giant in its own right -- it has a presence in 125 countries, ground operations in 49 of them, and manufacturing operations in nine nations, the analysts said.

They said that in the third quarter of last year, Europe and North American sales accounted for 36% of Ranbaxy's total, with India and other developing countries making up the rest.


JFE Holdings unit JFE Steel Corp. acquired about a 10% stake in JSW Steel -- India's third-largest steelmaker -- in November 2009, and said it will also license its automotive steel technology.

Toyota Motor Corp. and Nissan Motor Co. plan to build factories in India in 2010, which will spur demand for high-grade steel. JFE's move to tie with JSW could give it a head start on domestic rivals in supplying steel to the fast-growing market, Nikkei reported recently.

Pharama is outside my circle of competence—I have little interest in following that industry—and I'm kind of bearish on steel so I have low interest in any of these mentioned companies. Nevertheless, it is worth checking these out, especially given how Japanese stocks, in general, appear cheap. If one can grab cheap stocks with hidden emerging market potential, it'll likely be profitable in the long run. I'm not sure if these two Japanese companies are cheap so one needs to analyze them.

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