India ETFs Appear on Verge of Breaking Out After Stealth Moves

Exchange-traded funds that track India’s stock market, the world’s eighth largest, appear on the verge of finally breaking out.  

But unlike the proverbial tree that falls in the forest, will U.S. investors hear it loud and clear, and be ready to profit from it? At this time of global equity malaise, with the world’s attention focused on AI and the Nasdaq, India stocks may be hiding in plain sight. 

This has been a year of “fakeout breakouts” in many of the globe’s stock markets, when a sector or industry appears to transition from trading in a narrow range to a bullish price trend.  

That has confounded fundamental and technical analysts, as the market is big on laggards amid a narrow, arguably deceptive first half. The S&P 500 reached its highest closing level of the year on Friday, and is now up more than 12% in 2023.  

While China and perhaps Japan get more attention in the search for investment life outside of U.S. domestic markets, India ETFs might be somewhat of an afterthought. Year to date, the 14 India-focused equity ETFs have garnered net inflows of around $450 million. As a reference, that is about the same as one Europe-focused fund, the SPDR Euro STOXX 50 ETF (FEZ). 

Maybe that’s about to change. India is home to 1.38 billion people, more than a sixth of the planet’s population, and its stock market is filled with profitable companies selling at a huge discount to the U.S. market.  

India may be on the way to replacing a significant portion of China's low-cost labor role, as China is considered to be an increasing geopolitical threat to the U.S. and Europe. The country’s massive population is potentially being mobilized for commerce to a level not previously seen. 

Perhaps the most intriguing ETF in this area is the WisdomTree India Earnings Fund (EPI), since its current portfolio trades at less than 14x trailing 12-month earnings. That is easily the lowest multiple in the group.  

The fund also yields about 2.6%, which is around twice the average of the other 13 India ETFs. At a time when value and price momentum are a tough pair to find, this $85s million ETF could be an underappreciated bargain. 

Then, there’s the case of the iShares MSCI India ETF (INDA) versus the iShares India 50 ETF (INDY), which represents a good example of why using tools like etf.com’s ETF Comparison Tool can provide value-added insights for financial advisors and investors. These two funds have the same issuer, and seven of INDA’s top 10 holdings are also held in INDY.  

However, as the fund name states, INDY’s portfolio is limited to just 50 stocks versus INDA’s 115. That concentration has been one factor in INDY’s outperformance this year, despite carrying a higher expense ratio (0.89% to 0.64%).  

Furthermore, INDY has been a long-term outperformer, yet has just under $600 million in assets, compared to nearly $5 billion for INDA. INDY also trades $1.5 million of volume on an average day, a figure dwarfed by INDA’s $68.4 million. The bottom line with these two: Size and expense ratio are only two of many factors to consider when researching ETFs. 

And, for those looking further outside the box to access India’s market via ETFs, the iShares MSCI India Small-Cap ETF (SMIN) and the Columbia India Consumer ETF (INCO) represent niche market segments, as noted by their fund names. 

After many years of U.S. equity market prowess versus much of the world’s markets, the eighth largest market, India, may be a geographic spot for ETF investors to consider.