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5 Mega Stocks to Gain as World Bank Ups India's EDB Ranking

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The government of India recently received a shot in the arm, as the country for the first time secured a place in the top 100 of the World Bank’s Ease of Doing Business (EDB) global rankings. This appeared in the World Bank Group’s latest Doing Business 2018: Reforming to Create Jobs report. Ranked 130 a year ago, the report has adjudged India the fifth best-performing country in reforming the business environment.

According to the World Bank, between Jun 2, 2016 and Jun 1, 2017, India improved in nine out of 10 categories in making processes easy for doing business. This strong showing is primarily due to a series of economic reforms taken by Prime Minister Narendra Modi’s administration in the last three years.

World Bank has commended India for its work in five key areas. Let’s discuss those briefly:

1. On the - distance to frontier metric - one of the key indicators in the survey, India’s score increased from 56.05 in Doing Business 2017 to 60.76 in this year’s report. This means last year India improved its business regulations in absolute terms.  This is an indication that the country is continuing its steady shift towards best practice in business regulation.

2. India jumped 53 places to reach a rank of 119 in the ‘paying taxes’ category. The key driver here is the Goods and Services Tax (GST) implemented by the government of India from Jul 1, 2017. World Bank believes that GST has made the process of paying taxes easier.

3. In terms of resolving business insolvency, the report stated that it has become easier to exit a failed business in India in the last one year. A failed business can now shut down within 180 days in the country.

4. India now ranks 29th in the world in terms of making credit available for businesses. Government of India is trying to induce demand in the economy, which will propel the industry to avail more credit in order to make more investment.

5. India now ranks 4th in the world in terms of protecting interests of minority investors. Last year, the country ranked 13th.

Here we offer five stocks to watch out for from the information technology sector as they have strong business interest in India. 

Why Tech Stocks?

The tech-savvy generation between the ages of 15-35, popularly known as “millennials”, are the key drivers for the growth of Internet-based applications, e-commerce and mobile-transaction related software. Notably, India has a population of 1.234 billion. The millennials have a strong appetite for new technologies. As this group has the prospect of comprising 75% of the workforce by 2025, it surely emerges as a long-term investment bet for tech giants.

The market size of Internet industry in India is likely to reach $250 billion by 2020, growing to 7.5% per cent of its gross domestic product (GDP). The number of Internet users in India is expected to reach 730 million by 2020, supported by fast adoption of digital technology, according to a report by National Association of Software and Services Companies (NASSCOM).

Strong Telecom Advancement in India

India is currently the second-largest telecommunication market and has the third-highest number of Internet users in the world. Data usage on Indian telecom operators' networks doubled in six months to 359 petabytes or 3.7 million gigabytes per month. The share of 4G LTE data usage was 34% at the end of June 2017. According to the Ericsson Mobility Report, smartphone subscriptions in India is expected to increase to 810 million users by 2021, while the total smartphone traffic is expected to grow to 4.2 Exabytes per month by the same year.

Indian telecommunication companies will be investing $20 billion over the next two years for expansion of network and operations. The telecom industry has attracted FDI (foreign direct investment) worth $24.033 billion between April 2000 and June 2017, according to the data released by Department of Industrial Policy and Promotion (DIPP).

Strong Future Growth Projection

India is a $2.3 trillion economy. The World Bank reduced India’s GDP growth projection to 7% in fiscal year (FY) 2018 from 7.1% in FY 2017. However, the agency has stated that this temporary aberration is caused by disruptions in preparation for the GST and the demonetization of high-value banknotes in November 2016.  World Bank is optimistic that all these aberrations will get corrected in the near future and consequently raised India’s GDP growth projection to 7.4% in FY 2020.

The JAM trinity (Jan Dhan scheme - Aadhaar (biometric identity) card – mobile connection) undertaken by the Modi administration has so far resulted in the opening of about 30 crore bank accounts in rural areas and nearly $10.4 billion having been deposited there. Moreover, on the stock market front, on Nov 1, 2017, the benchmark BSE Sensex jumped more than 387 points to close at a fresh life-time high of 33,600, while Nifty topped the 10,450-mark for the first time.

India has shown tremendous resilience in times of global uncertainty. A slew of economic reforms, improving current account deficit, a rebound in agriculture, a recovery in private investment, introduction of the GST, and a stable monetary policy will fuel economic growth and drive stocks higher.

Stocks in Focus

We offer five stocks that investors can cash in on India’s growth potential.

Twitter Inc. TWTR carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. The company has a projected long-term (three-five years) growth potential of 21.50%. This microblogging site is expected to have 26.7 million users in India by the end of this year.

Microsoft Corp. (MSFT - Free Report) carries a Zacks Rank #2 (Buy). The company has a projected long-term (three-five years) growth potential of 12.68%. At present more than 90% desktops used in India are running on various versions of Windows Operating systems (OS). The windows mobile OS is currently have a little less than 20% market share in India. Inc. AMZN carries a Zacks Rank #2. Amazon has a projected long-term (three-five years) growth potential of 18.84%. This online trading giant currently commands nearly 30% of Indian e-commerce market.

Facebook Inc. FB carries a Zacks Rank #3 (Hold). Facebook has a projected long-term (three-five years) growth potential of 25.62%. India currently has more than 241 million Facebook users.

Alphabet Inc. GOOGL carries a Zacks Rank #3. The company has a projected long-term (three-five years) growth potential of 18.41%. At present, nearly 84.5% of data traffic for desktop search is originating from Google in India. The company currently commands 96.7% of overall search engine market share in this country. Android currently commands more than 85% of mobile OS used in smartphones in India.

Bottom Line

Is the ball set to roll in favor of India as the country’s ties with the U.S. mature under President Donald Trump? The answer is possibly yes. The relationship between the two countries has witnessed considerable ups and downs over last six decades. However, a tightening of relations with India, which was started during the Barack Obama regime, is likely to be cemented during the Trump government. The U.S. tech stocks are likely to benefit the most from the changed landscape.

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