Barring a brief run from mid-2013 to mid-2014, India stocks have been chronic underperformers since the Great Recession as high inflation and political struggles battered what should have been a fast-growing economy.
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But now, investors seem to be warming to the idea of investing in India – and it may be time to consider taking a stake in this emerging market, given fears of a top in the U.S., a “grexit” shaking up Europe and the obvious challenges of growth in China.
ETF Trends notes that India’s rising popularity as the emerging market destination of choice for stock traders is shown by recent inflows to India ETFs across 2015. According to the site:
Year-to-date, the WisdomTree India Earnings Fund (EPI) attracted $459.2 million in new net inflows, iShares India 50 ETF (INDY) added $208.0 million in net assets and PowerShares India Portfolio (PIN) saw $75.8 million in inflows, according to ETF.com. In contrast, the broader iShares MSCI Emerging Markets ETF (EEM) experienced almost $2.8 billion in net outflows this year.
There are good reasons for this rush to India ETFs. Reports show consumer inflation running at about 5% in May, down sharply from a peak rate of around 11% in 2013 according to the World Bank.
While that still sounds high to those of us in the West, remember that inflation is a characteristic of fast-growing economies — and regions including Japan, Europe and even the U.S. have been more concerned with falling prices much more than rising ones.
Furthermore, the business-friendly government of Prime Minister Narendra Modi has garnered big optimism after shrinking budget deficits and pledging to improve the nation’s infrastructure. And given the recent focus on trade in the U.S., the time is right for partnerships with markets like India.
At the same time, domestic investors and consumers are feeling good about India – and putting their money where their mouths are. “Indian institutional investors, including mutual funds, insurance companies and banks, poured just over 200 billion rupees (about $3.13 billion) into the stock market in April and May, the largest net inflow over a two-month period since 2008,” writes the Wall Street Journal.
There are always risks with emerging market stocks, and the track record of India is surely a colorful one full of disappointments. However, investors who are concerned about markets running out of headroom elsewhere may want to consider India ETFs as many companies are still fairly priced.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via@JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.