India ETFs Should Weather Recent Emerging Market Scrutiny

The emerging markets have been under pressure as greater volatility and political strife weigh on the category. Nevertheless, strong fundamentals should keep India’s markets and country-specific exchange traded funds on investor’s radar.

“Despite volatility in India, our assessment of the macro picture and of corporate fundamentals supports our positive long-term conviction for India’s market. We see several factors we think should support a multi-year growth cycle, including growth in consumption and public investment,” Sukumar Rajah, Senior Managing Director and Director of Portfolio Management for Franklin Templeton Emerging Markets Equity, said in a research note.

Rajah pointed out that India is a domestically oriented economy with limited export dependence. Due to its robust macro situation and strong domestic liquidity in local equities, Franklin Templeton anticipates the Indian market to be more resilient to external factors, such as all the current noise surrounding trade barriers and an escalating trade war between the U.S. and China. Looking at the Nifty 500 Index, 76% of revenues of companies were generated within India. More importantly, India’s growing middle-class population will fuel domestic consumption, which makes up 60% of India’s GDP.

The growth outlook looks positive ahead. Economic growth has accelerated and the bottom-up corporate earnings trend has strengthened. The government’s “Make in India” program is slowly turning India into a global manufacturing hub and should benefit a variety of domestic sectors.

Indian Macro Story

“The overall Indian macro story appears stable to us, with consistent positives such as steady gross domestic product (GDP) growth, rising per-capita income, increased private consumption and public investment, and improvement in high-frequency growth indicators such as stronger auto sales and cement production,” Rajah said.