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HDFC Bank Limited (ADR) (HDB), Infosys Ltd ADR (INFY) – Investing in Emerging Markets: India

Mining and Metals

Sterlite Industries India Limited (ADR) (NYSE:SLT) is the largest non-ferrous mining company in India and has been beaten down due to imposed bans on mining operations in Karnataka and Goa. Besides that, the Tamil Nadu government has also imposed a ban on its Tuticorin-based copper smelting plant because of an alleged gas leak. The plant can process up to 400,000 tonnes of copper annually, but came to an absolute standstill after the ruling.

This not only hurt Sterlite Industries India Limited (ADR) (NYSE:SLT), but also strained the domestic copper supply in India. Hence, to ease the supply, the Supreme Court of India recently overruled the decision and allowed its copper smelting plant to be reopened. This is a huge short term positive for the company, as the ruling gives it a chance to stockpile copper before the interim report due in July.

Besides that, its merger with SesaGoa is also awaiting the approval of regulatory authorities. Once the merger is through, it will create SeseSterlite, which will be counted among some of the largest mining and metals companies around the globe. But all that won’t matter if mining operations in Goa and Karnataka remain suspended.

Final Words

I firmly believe that the Supreme Court of India will overturn its mining bans in Karnataka and Goa. This is because the iron ore shortage is forcing Indian steel producers to import iron ore from China, which in turn is widening its trade gap and causing further rupee depreciation. But until that happens, Stelite Industries will continue to bleed.

Although I have long positions in eight different Indian banks, I am particularly bullish on HDFC Bank Limited (ADR) (NYSE:HDB). Naturally, with interest rate cuts the RBI will free up liquidity, which will eventually lead to bigger deposits and higher volume-based interest income.

And lastly, I’m bearish on Infosys. It’s having managerial setbacks and recently approached its 66 year-old retired CEO, Mr. Narayna Murthy, for direction. In my opinion, Infosys needs young blood to innovate and compete aggressively in order to break its streak of poor financial performance.

Piyush Arora
owns shares of HDFC Bank. The Motley Fool has no position in any of the stocks mentioned.
Piyush is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Investing in Emerging Markets: India originally appeared on is written by Piyush Arora.

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