Back in the summer of 2018, I’d discussed one way for investors to get in on the huge growth we were seeing for the Indian economy. Fairfax India Holdings (TSX:FIH.U) is an investment holding company that invests in public and private equity securities and debt instruments in India. Shares have dropped 9.7% in 2019 as of close on September 6.
Around this time last year, I’d focused on Fairfax India as a possible alternative to avoid the turbulent conditions caused by the United States-China trade war. Fairfax India stock did start with some promising momentum in 2019, but it has faltered. Is there any reason to scoop up the stock at a potential discount in the late summer? Let’s dive in.
Second-quarter earnings
Fairfax India released its second-quarter 2019 results on August 1. It reported a net loss of $55.5 million, or $0.36 per diluted share. This was an improvement from its net loss of $69.6 million, or $0.45 per diluted share, in Q2 2018. The company’s net loss improved due to increased net realized gains on investments.
However, in the year-to-date period, Fairfax India has posted a net loss of $108 million compared to $40 million in 2018. Fairfax is engaged in property and casualty insurance and reinsurance and the associated investment management. In past articles, I’d discussed how the rise of the middle class in Asia was propelling big players in the insurance industry. This company is well positioned to benefit from this growth.
India is experiencing a boom in home ownership along with its rising economy, but home insurance rates remain dangerously low. There is significant room for growth here, and this has the chance to fuel earnings growth in the quarters to come.
The stock is trading near 52-week lows
Shares of Fairfax India have plunged 12.8% over the past three months. The stock hit a 52-week low of $11.01 in trading in late August. It enjoyed an uptick to start September, but it has since retreated below the $12 mark. The stock boasts enticing value as of close on September 6.
Fairfax stock possesses a forward price-to-earnings ratio of 15.1 and a favourable price-to-book ratio of 0.9. Shares spent most of August in technically oversold territory, but the early September rebound has put it back at neutral levels.
Should you buy Fairfax India stock today?
The stock does possess some favourable technicals, and I like the high-growth spaces it is invested in. However, macro trends are moving in the wrong direction right now. India’s growth is still strong relative to its peers in Asia, but it has slowed dramatically due to headwinds generated by a weakening currency and rising oil prices. The country’s GDP growth fell to a six-year low of 5% in the three months to June.
This slump is putting intense pressure on the government of Prime Minister Modi. India has gone from one of the brighter economic success stories to one mired by rising inflation and slumping growth. Fairfax India is not enough of a bargain for me to jump in today, but it is still worth monitoring for the rest of 2019.
