Entering 2024, there was some concern among emerging market observers that previously high-flying India equities could be vulnerable to retrenchment. Lofty valuations and national elections were mentioned as potential catalysts for pullbacks.
It’s possible that thesis will eventually be validated. But to start 2024, the country’s stocks continue looking strong. For example, the MSCI India Index is higher by almost 4%. But the MSCI China and Emerging Markets indexes are saddled with losses.
That’s one positive sign for exchange traded funds such as the VanEck Digital India ETF (DGIN). More important and potentially more helpful to the DGIN thesis is the point that some experts believe, even after a strong multiyear run, India stocks are primed for more upside.
Why India ETF DGIN Matters
There are dozens of India-specific ETFs with large exposure to the country for investors to consider. But these products aren’t cut from the same cloth. Highlighting the allure of DGIN is the point that the fund is levered to megatrends such as digitization and global offshoring.
“As the world’s supply chains continue to realign in a rewired global economy, India is poised to become an attractive alternative for electronics manufacturing, which could lead the sector to expand by 21% a year to reach $604 million by 2032,” according to Morgan Stanley Research forecasts.
Another factor could open the door to opportunity with DGIN. As Morgan Stanley noted, investors are skeptical about India’s ability to deliver better GDP growth this year than China. Those concerns are amplified against the backdrop of national elections.
Current forecasts call for China to post 2024 GDP growth of 6%, which is impressive. But India — Asia’s third-largest economy — could notch GDP growth of 12% this year, according to Morgan Stanley. That’s stellar for an economy the size of India.
Should the country come close to reaching that estimate, that growth would likely positively affect earnings per share among India companies, including DGIN member firms. Assuming EPS growth materializes, that could allay some concerns about rich multiples on Indian stocks.
“The market seems to be taking the view that Indian equities will level down to subpar growth in 2024, but we think we are only halfway through a profit cycle that will yield 20% compounding earnings growth over the next four to five years,” noted Ridham Desai, Morgan Stanley’s chief equity strategist for India.
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