Two years ago, India stocks and exchange traded funds were the gems in an otherwise dismal landscape for emerging markets equities. That theme changed for the worse last year and has extended into 2016 as funds such as the iShares MSCI India ETF (BATS: INDA), PowerShares India Portfolio (NYSEArca: PIN) and WisdomTree India Earnings ETF (NYSE: EPI) are among the worst single-country emerging markets ETFs this year.
However, some market observers believe Indian stocks offer rebound potential. Over the short-term, India has benefited from cheap energy prices as the country is one of the largest importers of crude oil. Looking further out, economic reforms, including more business-friendly and growth-oriented policies, could help support growth over the medium-term.
Specifically, many argue that India’s favorable demographics will help support a growing economy. Over a third of India’s 1.3 billion people are between the ages of 15 and 34 with a median age of 27, compared to 37 in China, 38 in the U.S., 41 in developed Europe and 46 in Japan. India’s population is also expected to grow by 1.4%, compared to China’s 0.5% and 0.9% in the U.S.
Goldman Sachs Asset Management “thinks that India’s real gross-domestic-product growth could move from about 7.5% today to 10% within the next several years, but the full benefit of that uptick won’t be reflected in funds that buy the index. The index is dominated by behemoths like Infosys (INFY), the global technology-outsourcing company, and large, slow-growth industrial companies. Koch prefers India’s small- and mid-cap stocks. She likes consumer, e-commerce, and infrastructure plays that can benefit as the government invests in growth, and India’s expanding middle class spends,” reports Dimitra DeFotis for Barron’s.
INDA tracks the MSCI India Index, a market capitalization-weighted index that is fairly top heavy. PIN follows the Indus India Index, which takes the largest companies listed on two major Indian exchanges. EPI tracks the WisdomTree India Earnings Index, which weights holdings based on earnings, so the fund may have a greater tilt toward smaller companies.
“Barron’s Roundtable member Jeffrey Gundlach, of DoubleLine Capital, thinks the opportunity to buy India may not come until later this year. Koch is more bullish now on India as part of a long-term emerging market allocation of as much as 10%. But she warns not to check performance daily,” adds Barron’s.
iShares MSCI India ETF
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.