This India based travel firm is set to fly on lower fuel costs.

People often refer to emerging markets as if they it was one homogenous investment bucket. But this couldn’t be further from truth. Just as it would be mistaken to equate developed economies and invest equally in the U.S. and France, there are worlds of difference among the EM nations.

To that end we keep hearing that the U.S. is the best, and possibly only, game in town for investors.

I have two numbers that tell a very different story: 10.5% and 38%. The first is the amount the S&P 500 Index (SPX) is up year to date. Respectable, yes. But it falls far short of the latter which is the amount Bombay Sensex Index is up this far in 2014.

There are a number exchange traded funds such as Powershares India (PIN) or India Fund (IFN) that can provide broad India and help diversify a U.S. centric portfolio. But it is very difficult to invest directly in India based firms especially those that serve its burgeoning middle class.

MakeMy Trip (MMYT) is an India based online travel service firm, trades on the Nasdaq and offers a great play on the emerging Indian consumer.   It stock is setting up for big gains in the coming months.

Low Fuel Will Fire India’s Economy  

India is the world’s fourth largest economy and the second largest importer of oil. At over 3.5 billion barrels per year, or nearly 70% of its consumption, India is the world’s second largest importer of oil behind China. This dependence not only constrains economic activity but also leaves it vulnerable to inflation.

The sharp drop in oil, which has declined some 30% over the past three months, couldn’t have come at a better time. It will allow President Modi, who was brought into office in the Spring with a mandate to effect sweeping economic reform, to implement his initiatives.

Crucial is the ability to reduce debt by lowering social subsidies. Lower oil costs provides the flexibility to continue its extensive food subsidy program, which is crucial for its large population that lives in poverty, and freeing the growing middle class to increase discretionary on things such as travel.

MakeMy Trip is essentially the Priceline (PCLN) India. It is uniquely positioned to leverage the internet and ride the hockey stick growth prospects of both domestic and foreign travel across the region.

In its most recently report quarter on October 30^th the company posted revenue of $94.8 million in up 22.9% (31.3% in constant currency) over the same quarter last year and loss of just $0.04 per share which was narrower than the loss of $0.11 expected. It expects to turn its first profit next quarter.

The drivers were a 27% increase in domestic air and a 52% jump in hotel packages. Overall transactions surges by 106.5% growth in transactions as those conducted by mobile apps more than doubled.

The stock received multiple analyst upgrades following that earnings report helping the shares, which were already up 35% year-to-date, continue their steady ascent.

As you can see the stock been consolidating above both its 50 and 200 day moving averages forming a bullish flag and potential inverted head and shoulders. This offers an attractive risk/reward entry point near the $28 level.

In addition to the positive fundamentals and technical set up I also think there is an outside chance for this company to be a takeover target.   Given MakeMY Trips unique position in the south Indian subcontinent and its very digestible $1.2 billion market capitalization it would be great way for a firm like Priceline to grow its global presence. Priceline has used acquisitions of brands such a Booking.com, Kayak and Agoda to enter and the European and Asian markets. These previous acquisitions, such as Opentable, all commanded premiums of 50% or more.

The Trade

Given all the tailwinds at its back, and the potential kicker for a takeover, I want to position myself for unlimited upside and give sufficient time for the thesis to play out. Therefore I am buying call options outright with a May 2015 expiration.

–Buy May $35 calls for $1.50 a contract

I have no particular price target but would look to take partial profits by rolling up or paring the position if the calls double to $3.00 a contract.

Set a close below $27 a share as a stop loss for exiting the position.