The 3 Most Undervalued Stocks in India for Your February Buy List

Indian markets were in focus with Hindenburg Research’s recent report on the Adani Group. The report alleges that the group pulled off the “biggest scam in the company’s history”. The battle continues with a detailed response from the Adani Group. However, the resulting correction in Indian equities appears to have presented a great opportunity to grab some undervalued stocks in India.

Beyond the Adani controversy, there is no doubt that India is among the most attractive emerging markets. Factors such as favorable demographics and a growing middle class are drivers of long-term GDP growth. Government policies have also been conducive to business growth, focusing on infrastructure, manufacturing and green energy.

I also believe that over the next five to ten years Indian markets will outperform developed market equities. Of course, this does not imply that investors are overweight India. However, even a 10-15% allocation can act as a portfolio catalyst.

Let’s talk about three undervalued stocks in India to buy at current levels.

MakeMyTrip (MMYT)

India has one of the highest household savings rates in the world. Even after declining slightly, the overall household financial savings rate in India was 10.8% in 2022. With rising incomes and a burgeoning middle class, consumer spending is likely to pick up. accelerate. By 2030, there are expected to be 142 million additional middle-income households in India. One industry that is certainly well positioned to benefit is travel and tourism.

MakeMyTrip (NASDAQ:MMYT) is a first choice in this sector. The online travel company has enjoyed a healthy recovery from the pandemic, which is expected to continue. Currently, the company has a wide range of products and services. These include airline ticketing, vacation packages, bus and train reservations, and more.

It should be noted that between the years 2018 and 2021, MakeMyTrip recorded operating losses. However, the business is currently profitable and margin expansion is likely as the company’s share of vacation packages increases in proportion to its overall revenue. Overall, MMYT stock is positioned to deliver multibagger returns over the next five years.

Dr. Reddy’s Laboratories (RDY)

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Dr. Reddy’s Laboratories (NYSE:RDY) is another name to consider among undervalued stocks in India. After trading sideways for the past 12 months, the stock looks set for a breakout. The first reason is its valuation, with RDY shares trading at an attractive price-earnings ratio of 20.6x. This stock also has a dividend yield of 0.7%.

Another reason to be bullish on this pharmaceutical company is its sustained revenue and EBITDA growth. Through a combination of organic growth and acquisitions, Dr. Reddy has guided double-digit revenue growth.

The company already has a strong presence in the generics market and is increasingly investing in research and development. For the first half of 2022, the company’s R&D investment was 8% of sales. Once the company’s proprietary product portfolio is commercialized, growth can accelerate as margins expand.

Dr. Reddy’s also has a broad geographic presence. Apart from India, the company has a presence in the United States, Europe, Russia, China and Brazil. With a large potential market and a growing portfolio of affordable products, the outlook for Dr. Reddy’s is positive.

HDFC Bank (HDB)

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The banking sector is often seen as the backbone of economic growth. For investors optimistic about Indian growth, owning one of the few top-tier banking stocks is key. HDFC Bank (NYSE:HDBs) is perhaps the best choice in the industry.

With a forward price/earnings ratio of 22.5x, HDB stock looks attractive. Over the past 12 months, the stock has traded relatively sideways. However, I believe that once the bank completes its merger with HDFC (the largest mortgage lender in India), the stock will tend to rise.

Currently, HDFC Bank is the largest private sector bank in India, with over 70 million customers. Notably, the bank has some of the best net non-performing asset figures in the Indian banking system.

With significant expansion potential in semi-urban and rural India, the company’s customer base will continue to grow. At the same time, its core banking business is likely to remain attractive with a healthy net interest margin.

As of the date of publication, Faisal Humayun does not hold (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.