There has been a greater focus on Asia recently in the news, mostly over the supposed success of “Abenomics” in Japan, growing tensions on the Korean Peninsula, and a slowdown in China’s economic growth. While these are all important for investors to consider when looking towards Asia for economic opportunity, one nation, India, has been flying under the radar for quite some time. As the world’s tenth-largest economy in terms of nominal GDP (third-largest when considering purchasing power parity), and growing, India represents a good place to invest for a lot of companies hoping to cash in on recent government incentives to modernize the nation.
So far, the incentives haven’t boosted domestic production, but they could be great for tech companies like Apple Inc. (NASDAQ:AAPL) and Sony Corporation (ADR) (NYSE:SNE), and for airplane manufacturing giant The Boeing Company (NYSE:BA), all of whom are making long-term investments to corner the country’s emerging market in smartphones, TVs, and airline travel; all critical for a nation that wants to modernize.
Boeing can fly away
When people think of Indian travel, trains overflowing with people are usually the first thing that springs to mind. While iconic, this isn’t exactly a modern way of travelling across a country as vast as India. This is where The Boeing Company (NYSE:BA) has recently stepped in with an agreement with Indian airliner Jet Air for an order of 46 737s over a three-year span. This would modernize the airline company for a projected influx of customers. According to some estimates, there will be 180 million people flying above India by 2021 as air travel expands, and the demand for new planes could be worth $175 billion over 20 years, which would be a lucrative opportunity for The Boeing Company (NYSE:BA) going forward in India.
Indeed, for any one of the world’s leading airplane makers, a rapidly growing market like India is enticing. It will lead to more people springing for air travel rather than train travel, especially as the economy matures to the point of sustaining multinational companies, which will require quick movement around the country, and modern airports to accommodate this increase. The Boeing Company (NYSE:BA)’s investment in the country now will yield big profits for the company, which will boost share prices and give investors good long-term gains, especially when markets like America and Europe are too mature to see the kind of gains that may come about from investing in emerging markets like India.
Cheap iPods a big, affordable play
Keeping with India’s modernization push, the growing middle class in the country will soon be demanding luxuries like smartphones and flat-screen TVs, things many westerners take for granted. Unfortunately for India, domestic production for screens and appliances is far from where the demand needs to be, meaning that India’s government has resorted to using government subsidies and investments in new technology plants to promote domestic consumption. However, this has had the effect of foreign companies like Apple Inc. (NASDAQ:AAPL), Sony Corporation (ADR) (NYSE:SNE), and Samsung jumping in and taking advantage of the subsidies offered. According to tech industry estimates, 90% of the demand for screens for TVs and smartphones is unrealized, leaving it to foreign companies to pick up the slack.
Apple Inc. (NASDAQ:AAPL) has the advantage in the future Indian smartphone market, after having recently released iTunes for India. Not only that, since India has yet to have a developed network on par with Europe or the U.S., Apple Inc. (NASDAQ:AAPL) is planning on selling older models of the iPhone and iPod at reduced rates, to have products working within the bounds of the nation’s grid, but also to make them affordable for a majority of Indians.
Estimates show that by 2017, there will be 156 million smartphones being used in India, up from 26 million currently in use. This is rapid growth in just four years, which speaks to the expectation of economic development in the nation by many industry experts.
Apple Inc. (NASDAQ:AAPL)’s early entry into the market, as well as the name recognition that comes with it, will help expand Apple’s brand and grab a lion’s share of the profits of this growing sector of the economy. It can be done by dumping gadgets that are nearly obsolete everywhere else, boosting Apple’s profits further than in other markets that require constant innovation to stay competitive.
Can Sony break through potential clutter for TVs?
As Apple takes on the smartphone market, Sony Corporation (ADR) (NYSE:SNE) will be in the market for TV screens, though its presence will be less than Apple or Boeing in the future. The government is hoping that foreign companies will be making these phones and screens in India, as well as encouraging domestic companies to get in on the act.
Sony has announced, though, that it will be not building plants in India, choosing instead to export screens to India for sale to save costs of factory development. Screens are a much more competitive field than smartphones in Asia, since they can be done with less manpower by smaller companies, so Sony Corporation (ADR) (NYSE:SNE) will need full television sets to carry the workload for the company.
Also, with time, local companies will be competing directly with Sony, and will have the advantage of a supportive government and proximity to the customer base if Sony Corporation (ADR) (NYSE:SNE) continues with its export-only strategy for India.
The bottom line
There is still room for growth in India for Sony, but given the smaller market share Sony will have and a potentially smaller market, the company won’t be as hot of a ticket as Apple Inc. (NASDAQ:AAPL) and The Boeing Company (NYSE:BA) will be in the future. All three companies clearly see the advantages in investing in India’s future; their numbers back this statement up. Emerging Asian markets are always good investment opportunities, and India has been a bit of a dark horse compared with nations like China and Japan, though this may change.
The Boeing Company (NYSE:BA) and Apple Inc. (NASDAQ:AAPL) are the two better buys in this group, since Sony Corporation (ADR) (NYSE:SNE) has a smaller market to capture and better opportunities with the PS4 elsewhere. India is a long-term buy for these companies. Until domestic production ramps up to meet the demand, expect good returns for these foreign companies over the next decade or so.
The article Bull Market in the Land of Sacred Cows originally appeared on Fool.com and is written by John McKenna.
John McKenna has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. John is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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