Once a standout in the emerging markets category, Indian country-specific exchange traded funds are beginning to fall behind.

Since the May lows, the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO), the biggest emerging market-related ETF on the market, increased about 20%. Meanwhile, the iShares MSCI India ETF (CBOE: INDA) fell 5% and WisdomTree India Earnings ETF (NYSE: EPI) dropped 6%, both closing in on their long-term support at the 200-day simple moving average.

Bank of America Merrill Lynch warned that the premium Indian equities previously showed against their emerging market peers has narrowed to the smallest since last April and may not recover anytime soon, Bloomberg reports.

India’s equity benchmarks headed for their worst monthly drop since October as disappointments related to a proposed super-rich tax, tepid earnings and the lingering credit crisis weigh on the market. The losses have more or less erased the gains that followed Prime Minister Narendra Modi’s electoral victory in May.

Looking ahead, observers will now focus to the Federal Reserve’s meeting next week and signs of progress on trade talks, BAML analysts led by Sanjay Mookim wrote in a note.

“With little happening locally, headline Indian indices are now likely to move with EM trends,” the analysts said, maintaining the year-end NSE Nifty 50 Index target of 11,300, little changed from current levels. “We see little upside to markets through the year.”

Analysts were reluctant to call a bottom in the current market environment due as valuations remain elevated despite the shrinking in mid-cap premiums relative to their large-cap peers and earnings recovery remained weak. However, the analysts argued that earnings could have room for surprise.

“Until growth and earnings recover, large-cap index stocks can continue to outperform,” the analysts added.

For more information on India’s markets, visit our India category.

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