India Equities Can Extend Hot Streak | ETF Trends

It’s been widely documented that Indian stocks have been the stars among large emerging markets for some time now. Over the past three years, the MSCI India Index returned 33% while the MSCI Emerging Markets Index slumped 15.5%.

Additionally, the India index was significantly less volatile than the broader emerging markets benchmark over that span. The VanEck India Growth Leaders ETF (GLIN) was even better over those 36 months, returning 37.7%. The exchange traded fund remains a relevant consideration for investors seeking India exposure and multiple pillars support that thesis.

First, a common refrain about Indian stocks is that they are richly valued. GLIN’s emphasis on growth at a reasonable price (GARP) can potentially defray some of that valuation risk. Second, India remains a preferred destination for many global investors, indicating there could be an upside to come to GLIN on top of its year-to-date gain of almost 8%.

GLIN GARP Approach Could Be Rewarding

GLIN’s GARP focus helps bridge the divide between accessing India’s growth opportunities and the aforementioned valuation concerns. Fortunately, there’s evidence to suggest those worries are overblown.

“The best would be to compare Indian equity valuations with its own history or with global equities including developed markets. In that context, we find the premium is in the 10 to 15% range, which is not exorbitant, as some reports suggest,” noted Jayesh Gandhi, Head of India Equities at BNP Paribas.

GLIN, which turns 14 years old in August, holds 83 stocks and the ETF’s sector allocations speak to its quality story. For example, tech stocks account for 18.67% of the GLIN portfolio, making that the ETF’s second-largest sector exposure.

That’s relevant to investors not only because India has one of the largest, most advanced tech sectors in the world, but also because that group is home to some of the most fundamentally sturdy Indian companies.

“There are fundamental reasons or differences in Indian equities compared to emerging market equities. For example, India is dominated by service sector companies: 50% of Indian companies are service sector companies, which [typically] have a much stronger balance sheet, stronger ROIC [return on invested capital]and deliver consistent returns,” added Gandhi.

Gandhi also points out that Indian companies are growing earnings at solid rates, indicating some premium valuations are justified, and that more local investors are entering equities in large numbers. Both could be catalysts for GLIN as 2024 moves forward.

For more news, information, and analysis, visit the Beyond Basic Beta Channel.