The Indian economy appears as a bright spot in a world where all major economies such as Europe, USA, Japan and China are facing serious issues. It is the only major economy where GDP is growing at 7+ percent and this has a good chance to accelerate further. The government has passed some major structural reforms and policies such as the Goods and Service Tax Reforms (GST) and JAM (Jan Dhan Yojana, Aadhar and Mobile). The government is also making serious efforts to reduce red tape and improve the ease in doing business through “Make in India” initiative. Foreign investors such as Rosneft, Softbank etc. are becoming increasingly confident about India and making large multi billion dollar investments. Here are few Indian stocks that are hedge funds’ favorite. Investors can look at buying these stocks to take advantage of the growing Indian economy.
Imitating hedge funds and other institutional investors can help identify some of the most profitable stocks on the market. However, our extensive research that covered the period between 1999 and 2012, showed that the best approach is to follow these investors into their small-cap stocks. Our backtests showed that the 15 most popular small-cap stocks among hedge funds managed to generate a monthly alpha of 81 basis points, versus an alpha of 0.7 percentage points posted by their top 50 large-cap picks (see more details).
Let’s start with HDFC Bank Limited (ADR) (NYSE:HDB), in which the number of funds from our database long its stock increase to 23 from 21 during the second quarter, while the total value of their holdings went up by 6% to $1.61 billion. HDFC, which is the second largest private bank in India, is considered to be one of the safest bets in the Indian market due to the high quality of its management, stellar track record and leading position in the financial sector. Even as most banks in India have been hurt due to the rising NPAs, HDFC Bank Limited (ADR) (NYSE:HDB) has maintained its pristine balance sheet due to prudent lending practices. The stock has returned more than 13.90% year-to-date, outperforming the S&P 500 index which has gained around 3.80%.
Infosys Ltd ADR (NYSE:INFY), which is India’s second-largest software services company, saw 23 funds tracked by Insider Monkey holding shares at the end of June, up by two over the quarter. The company has shown a turnaround in the last couple of years under new CEO Vishal Sikka and has started to show faster growth by focusing more on digital services. However, the stock has lost almost 8% in the last three months due to poor quarterly results. Though revenue in the first quarter of fiscal 2017 increased 17% year-on-year to $2.5 billion, Infosys Ltd ADR (NYSE:INFY) disappointed investors by reducing full-year revenue growth guidance to 10.5%-12%.