Assessing India’s Growth Story

April 23, 2019

This article is part of a regular series of thought leadership pieces from some of the more influential ETF strategists in the money management industry. Today's article is by James Calhoun, portfolio manager at Accuvest Global Advisors in Walnut Creek, California.

India is one of the biggest emerging markets, and a growing one, but is India’s growth reasonably priced?

To take a look at the opportunity set in India as an ETF investor, consider these key statistics:

  • India’s expected earnings per share (EPS) growth is high: 26.6%
  • India’s trailing price to earnings (P/E) ratio is high: 23.9x
  • Foreign institutional investment in India surged in Q1 2019
  • 26.6% expected EPS growth at a price of 23.9x trailing EPS appears “reasonable”

Growth

India's expected long-term EPS growth has increased from 15.5% in November 2017 to 26.6% in March 2019. Simultaneously, the rest of the world (an average of 34 other countries) has seen expected EPS growth decrease from 13.6% to 10.7% (see chart below).

 

Sources: MSCI, Accuvest

 

Value

India is currently the most expensive country in our universe, trading at a "lofty" 23.9x price-to-trailing earnings ratio.

This valuation metric was 23.2x back in November 2017, and has averaged 22.9x over the two years ended March 31, 2019. The rest of the world (average of 34 other countries) currently trades at a price to trailing earnings ratio of 15.6x, and has averaged 17.3x over the last two years (see chart below).

 

Sources: MSCI, Accuvest

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