Assessing India’s Growth Story

April 23, 2019

Is India’s Growth Reasonable Priced?

Balancing (dividing) India's expected earnings growth by its P/E multiple yields a growth-to-value ratio of 1.1x (6th out of 35 countries). The rest of the world exhibits a growth-to-value ratio of only 0.69, and the U.S. trades a growth-to-value ratio of 0.70x (see chart below).


Sources: MSCI, Accuvest


Recent price momentum suggests India's expected growth is both realistic and attractive to global investors.

The MSCI India Index returned 9.2% in March, outperforming 45 other countries. Over that same period, Indian equities saw foreign institutional investor (FII) inflows of $4.3 billion, the largest monthly buying seen in the past two years. 

Year-to-date through March 31, FIIs have bought net $6.6 billion in India equities, the largest among all of the emerging market Asian markets. Foreign institutional ownership (as % total India market cap) has increased to 19.3%, but still remains below the 2015 peak of about 21%. Sectors attracting the most assets in 2019 include banks, energy and utilities.

ETF Implementation

The iShares MSCI India ETF (INDA), the WisdomTree India Earnings Fund (EPI) and the iShares India 50 ETF (INDY) are the most popular India ETFs by total assets. Each offers different tilts when it comes to sector exposure.

Relative to INDA, EPI offers higher allocations to energy and materials, and lower allocations to consumer staples and technology. Meanwhile, INDY—relative to INDA—provides meaningfully higher exposure to financials paired with less exposure to technology, health care and energy.


Forecasted earnings growth can shift higher for a variety of reasons, but confidence around India’s growth is rising.

Given a stable political environment, an accelerated pace of reforms and a huge surge in working age population, India appears well-positioned to deliver high economic and corporate profit growth.

Only the future can tell, but foreign investment and price momentum suggest that 23.9x earnings is a “reasonable” price for India’s 26.6% EPS growth. This goes to show, when growth is in short supply (globally), growth at a reasonable price can be increasingly expensive.


Sources: Accuvest, MSCI, Goldman Sachs Research


For a list of all relevant disclosures, please click here.

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