Investing

India's Great Long-Term Fundamentals Meet a Rather Poor Investment Start to 2018

Jon C. Ogg

Published: March 20, 2018 12:20 pm

Last Updated: January 12, 2020 2:16 am

Many investors have found the post-January volatility a bit unnerving. Now that the bull market is more than nine years old, and with market valuations high, many of those same investors are strongly considering exactly how they should be positioned for the rest of 2018 and beyond.

24/7 Wall St. covered in late 2017 about how India was expected to have the strongest growth rates of the world’s top emerging markets in 2018 and 2019. Whether or not that translates into being the best investment opportunity among emerging market competitive nations, it sets the bar high. India and many other emerging markets have a serious history of outperforming or underperforming what is perceived by economists as their economic potential in any given year.

Unfortunately, India’s great long-term growth opportunities have not translated into gains for investors so far in 2018. Indian shares had been down five days in a row until a small gain broke that streak.

It is true that India faces many challenges, from social to infrastructure, to health and inequality, and on and on. India’s biggest challenges also may be where its largest opportunities are.

Goldman Sachs issued a positive note about emerging market economies and a widening growth premium offering an attractive backdrop for emerging market equity and credit investors. In emerging markets in general, many countries are running current account surpluses. India was said to also offer investors access to broader and more diversified financial markets. The firm feels that India likely will benefit from demographic trends, reforms and an attractive equity market.

Katie Koch of Goldman Sachs Asset Management said in her report:

India is basically where China was back in 2000. It’s really the country that we’re most positive on from an emerging market equity perspective.

Koch also noted on its views on India above China by saying:

From an investment perspective, our view on India is set within an optimistic framework for emerging markets equities more broadly, providing double the earnings growth at a 25-30% discount to US equity markets. India’s market structure is particularly compelling due to the number and diversity of publicly listed companies that offer access to India’s growing consumer, while having a much smaller share of state-owned enterprises than China, for example. We prefer small and midcaps, where 30% exist outside of the benchmark index, and we have been able to generate outperformance with our bottom-up expertise on the ground in India.

24/7 Wall St.
Best and Worst Economies in the World

The WisdomTree India Earnings ETF (NYSE: EPI) was last seen up 0.7% at $26.08, but that’s down from a 52-week high of $29.52. This exchange traded fund has a 52-week low of $23.40, and it is now down 6.3% in 2018.

There is also the Columbia India Infrastructure ETF (NYSE: INXX) that was last seen up 0.8% at $14.11. This ETF sounds like it’s right in the sweet spot of what’s needed to help India turn into a post-emerging economy, but the shares are now down 11% so far in 2018.