While the MSCI China Index is saddled with a double-digit year-to-date loss and the MSCI Emerging Markets Index languishes to a lesser extent, Indian stocks and India ETFs are maintaining their status as the stars among equity markets in large developing economies.
That’s the good news and it’s also old news as Indian stocks and exchange traded funds such as the WisdomTree India Earnings Fund (EPI) have been China ETFs and broader emerging markets funds for some time now. The euphoria is notable and acts as call for investors to be selective with India exposures.
The $2.34 billion EPI answers that call. The ETF follows the WisdomTree India Earnings Index, which only includes profitable Indian firms. This is a strong step in the direction of selectivity.
Among India ETFs, EPI Stands Out
Against the undoubtedly attractive backdrops of soaring equity markets and steadily rising GDP, EPI makes even more sense as an avenue for accessing stocks in Asia’s third-largest economy. While compelling, those two conditions can breed too much euphoria. This can compel some market participants to take on too much risk with dubious companies.
By focusing on profitable companies, EPI damps some of the risk. This is important with a market that’s had some bouts with volatility over the years. Plus, profitable large-cap Indian firms may be more positively correlated to economic growth than less financially sturdy equivalents.
“India’s economy has become a powerhouse, registering a staggering 7% growth expected this year,” noted deVere Group CEO Nigel Green. “The country’s resilient economic performance has positioned it as one of the fastest-growing economies globally, drawing the attention of foreign investors seeking high returns.”
Green adds that soaring optimism regarding the near-term fate of Indian stocks is pushing valuations to somewhat frothy levels. Valuation alone isn’t a reason to exit the market, it could signal it’s appropriate to emphasize profitability with Indian equities. That’s what EPI does and it accomplishes that objective while alleviating end users of the stock-picking burden.
“As investors eagerly partake in the initial public offering (IPO) rush, some are growing wary of the underwhelming post-listing performances, raising questions about the sustainability of the market’s exuberance,” observed Green. “It becomes imperative for investors to exercise due diligence and distinguish between the hype-driven opportunities and those backed by sound fundamentals.”
EPI, which turns 16 years old later this month, holds nearly 480 stocks. Approximately 92% of the fund’s holdings are large- and mid-cap names.
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