Investors seeking international exposure may want to limit their exposure to India-related exchange traded funds as India stocks trade at their highest in three-years relative to global markets.
Year-to-date, the PowerShares India Portfolio (NYSEArca: PIN) has increased 24.8%, iShares MSCI India ET (NYSEArca: INDA) gained 23.4% and the iShares India 50 ETF (NasdaqGM: INDY) rose 28.7%.
After the double-digit gains this year, India’s stock market are trading at higher valuations, compared to the broader international markets, reports Dimitra DeFotis Barron’s.
Specifically, the consumer sectors are showing exceptionally higher valuations, compared to the broader India markets. The EGShares India Consumer ETF (NYSEArca: INCO) shows a 22.9 price-to-earnings ratio and a 3.9 price-to-book. Meanwhile, PIN has a 16.3 P/E and a 2.4 P/B, INDA has a 17.7 P/E and a 2.7 P/B and INDY shows a 17.2 P/E and a 2.3 P/B. [EM Consumer Staples ETFs Begin to Look Pricey]
In contrast, the broader emerging markets have been among the cheaper options in the global markets. The iShares MSCI Emerging Markets ETF (NYSEArca: EEM) has a 12.0 P/E and a 1.5 P/B and Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) has a 12.3 P/E and a 1.6 P/B.
“If the global readjustment stays orderly, India should be able to outperform. But sectors exposed to global growth would still be impacted,” Credit Suisse analysts Neelkanth Mishra and Ravi Shankar said.
Specifically, 56% of India’s Nifty 50 Index revenue are generated from overseas operations, so the large, multi-nationals will experience currency risk. INDY includes a 76.8% weight toward mega-caps, PIN allocates 71.5% in mega-caps and INDA has 71.0% in mega-caps.
Additionally, energy names like Cairn, metals companies like Tata Steel and Sesa Sterlite, along with banks exposed to these sectors are also at risk, the analysts added.
However, the Credit Suisse analysts argue that consumption, telecom and some other domestic companies could benefit ahead.
Looking at sector weights, INDY focuses on banks 21.8%, flowed by software stocks 14.5%, cigarette companies 7.2%, refineries 6.6% and housing finance 6.0%. INDA holds information tech 22.0%, financials 18.6%, energy 12.0%, consumer staples 11.3% and health care 9.2%. PIN’s top sectors include energy 23.3%, info. tech 20.7%, financials 10.7%, materials 10.2% and consumer staples 9.3%.
For more information on India, visit our India category.
Max Chen contributed to this article.