The International Monetary Fund has raised India’s GDP growth forecast to 6.8% for 2024 (financial year 2025). Further, growth is expected to remain robust at 6.5% for 2025. With favorable policies and a rising working-age population, the Indian economy is positioned for healthy growth through the decade. I would, therefore, look at exposure to undervalued Indian stocks for robust returns.
It’s important to note that portfolio diversification is important for capital preservation and healthy returns. A key aspect of portfolio diversification for the next decade is exposure to emerging markets. GDP growth in emerging markets will be meaningfully higher than in developed markets.
This column focuses on three undervalued Indian stocks that can double before the end of 2025. I believe these stocks are worth holding for the next five years.
Let’s discuss the reasons for being bullish on these stories.
HDFC Bank (HDB)
HDFC Bank (NYSE:HDB) is among the most undervalued Indian banking sector stocks to buy. HDB stock has declined by 17% in the last 12 months. However, the downside seems to be capped from current levels for this 1.2% dividend yield stock.
My view is underscored by the point that out of 42 analysts covering the bank, 88% have a buy rating and 12% hold rating. Further, the low-price target is $58.3, which is equal to the current market price. On the other hand, the most bullish estimate is for a price target of $86.7. This would imply a rally of almost 50% from current levels.
An important point to note is that India is likely to remain among the fastest-growing economies in the world. The banking sector is the backbone of economic growth, the basis of the bull thesis for HDFC Bank.
I must add that the bank continues to report stable asset quality. Further, the capital adequacy ratio is healthy at 18.8%. If inflation declines and policymakers cut rates, it will be a key catalyst for robust credit growth.
WNS Holdings Limited (WNS)
WNS Holdings (NYSE:WNS) stock has witnessed a sharp correction of 50% in the last 12 months. With WNS stock trading at a forward price-earnings ratio of 9.7, this seems like a good buying opportunity.
As an overview, WNS Holdings is a business process management company. For fiscal year 2024, WNS clocked revenue of $1.3 billion, which was higher by 8.1% yearly. While WNS stock has plunged, the company added nine new clients in Q4 2024 and expanded its relationship with 40 existing clients.
An important point is that WNS has focused on aggressively investing in AI and Generative AI. This is likely to help WNS retail clients.
Further, macroeconomic headwinds have impacted client budgets globally. With the possibility of rate cuts in 2024 and 2025, I expect GDP growth acceleration to be positive for WNS. The stock downside is, therefore, a good accumulation opportunity at a valuation gap.
Yatra Online (YTRA)
Let me end with a micro-cap stock discussion. Yatra Online (NASDAQ:YTRA) is an undervalued online travel and tourism operator in India. YTRA stock has declined by 29% in the last 12 months and looks poised for a strong reversal rally.
It’s worth noting that MakeMyTrip (NASDAQ:MMYT) is India’s largest online travel company. However, MMYT stock has surged 180% in the last 12 months and valuations look stretched. On the other hand, YTRA stock seems to be underrated, but the downside is capped at current levels.
A big reason to like Yatra is that the company has positioned itself as a leading player in the corporate travel market. Yatra has 8,000 big corporate clients and an addressable employee base of over seven million. This sets the company apart from its peers and provides ample headroom for growth.
At the same time, Yatra has initiated investments and focused on the business-to-consumer market. In this segment, the company directly competes with MakeMyTrip. Indians will be the fourth largest spenders on travel and tourism by 2030. With a big market, there is ample scope for growth for multiple players.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
