By Sunny Bokhari, Associate Product Manager
With India on track to become the world’s third-largest economy with a projected GDP of $5T by 20271, this emerging economic powerhouse has been stealing the investment spotlight—and with good reason. Its stock market has consistently outperformed major benchmarks over the past two decades, and its $4.33T market capitalization has already surpassed Hong Kong’s2 stock market, reflecting its strong economic fundamentals. Soaring valuations may be raising eyebrows, but we believe India remains an attractive investment destination among emerging markets. To manage valuation concerns, Growth at a Reasonable Price (GARP) investing offers an approach that helps investors gain exposure to India’s economic momentum while keeping a disciplined eye on valuation.
India’s 20-Year Winning Streak
Over the last 20 years, India’s stock market has outperformed both the S&P 500 and the MSCI Emerging Markets Index. This outperformance is a testament to India’s strong economic fundamentals, vibrant entrepreneurial ecosystem, and investor confidence in its long term growth. India’s stock market could remain attractive to global investors given the country’s strong macro-economic position relative to other emerging markets.
India’s Stock Market: A Strong Track Record of Performance
Source: Morningstar, data as of 1/31/2024.
India Valuations Near Record Highs
Despite strong stock performance and macro tailwinds, Indian equity valuations may give pause to some investors who are considering an allocation. Current valuations are rich compared to historical averages over the past 10 years.
MSCI India P/E: 12/31/2013 – 1/31/2024
Source: Factset, data as of 1/31/2024.
Even with reservations around valuations, India’s investment case remains strong. The country’s growth trajectory is compelling, and the geopolitical factors at play could potentially fuel another rally, especially following India’s general election in May 2024.
Sidestep Valuation Concerns Using GARP
GARP investing is all about striking the right balance. It aims to capture the upside potential of growth stocks while avoiding the pitfalls of overvaluation. GARP stocks exhibit strong earnings per share (EPS) and sales growth but are priced reasonably compared to the broader market. A GARP approach allows investors to capture growth in their portfolio while managing downside risk.
The characteristics of a GARP approach focused on Indian equities, represented by the MarketGrader India Growth Leaders Index, are shown below. GARP focuses on companies with robust growth metrics, leading to higher sales and EPS growth compared to the broader market. What sets it apart is its emphasis on value, resulting in lower valuation metrics like the price-to-earnings (P/E) ratio. This translates to a Price/Earnings to Growth (PEG) ratio that’s almost half that of the broader market index. A lower PEG ratio indicates that investors are paying less for each unit of expected earnings growth.
By concentrating on GARP stocks, investors gain consistent exposure to companies that are not just growing, but are also attractively valued. As shown below, focusing on GARP stocks provides consistent exposure to more attractively valued companies versus the broad market index as measured by forward P/E.
MarketGrader India Growth Leader’s Index Characteristics
| MarketGrader India Growth Leaders Index | MSCI India Index | |
| Sales Growth | 28.1 | 22.8 |
| EPS Growth | 57.2 | 30.3 |
| PEG | 0.7 | 1.3 |
| Forward P/E | 18.0 | 22.9 |
| P/B | 4.1 | 4.3 |
| Negative Sales Growth (% of index) | 2.6 | 4.6 |
| Negative EPS Growth (% of index) | 4.7 | 19.1 |
Data as of 12/31/2023, source: Bloomberg.
Intelligent Index Construction Yields Results
The GARP approach has delivered outperformance relative to the broad market index. As of January 31, 2024 MarketGrader India Growth Leaders Index has outperformed the broad market index in trailing 1-3 years of live index performance history.
Smart Indexing Delivers Outperformance vs. Broad Market
| YTD | 1 Year | 2 Years | 3 Years | 2/21/2020 – 1/31/2024 | |
| MarketGrader Growth Leaders Index | 4.15 | 42.92 | 9.39 | 14.43 | 15.03 |
| MSCI India Index | 2.41 | 27.53 | 7.46 | 13.76 | 13.50 |
Source: Morningstar. Data as of 1/31/2024. The table and chart show live performance history of MarketGrader India Growth Leaders Index since inception of 2/21/2020 relative to the broad market index.
Access GARP Investing in India
The MarketGrader India Growth Leaders Index is an all cap index that selects fundamentally strong Indian firms with attractive growth potential at reasonable prices. VanEck India Growth Leaders ETF (GLIN) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MarketGrader India All-Cap Growth Leaders Index.
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