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India ETFs Beat S&P 500 in 2022: What Awaits in 2023?
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India’s stock market has hit a brake in 2022, thanks to rising rate worries in the United States. Still, iShares India 50 ETF (INDY - Free Report) is off just 4.5% this year versus an 18.8% decline in the S&P 500 (as of Dec 16, 2022). The broader emerging market ETF iShares MSCI Emerging Markets ETF (EEM - Free Report) has lost about 22% so far this year.
India’s economy expanded 6.3% year over year in Q3 of 2022, slightly higher than the forecast of 6.2%, but well below 13.5% growth in Q2, as chaos caused by COVID lockdowns faded and resulted in a tough comparison, high prices and rising interest rates weighed on demand, and slowing global demand started to hurt exports.
But investors should not forget that India’s economy offers a great growth engine. The key Indian equity gauge Nifty 50 stock exchange may gain as much as 5.9% from its current 52-week high and touch 20,000 next year, thanks to FII inflows, according to BofA, as quoted on Moneycontrol. “Based on how macro things play out, we expect the Nifty to trade in a range from 17,000 to 20,000,” BofA Securities said.
The World Bank has revised India’s GDP growth forecast upward for the current financial year to 6.9% due to upbeat economic activities in the country, from the previous estimate of 6.5%. It expects the retail inflation of 7.1% in 2022-23, according to the World Bank’s latest India Development Update.
India’s economic performance has proved to be better than its peers, as the growth recovery has been robust while inflation has increased by much less than in other economies, per Barclays. Earlier this month, Reserve Bank of India Governor informed, that Net Foreign Direct Investment (FDI) stands at $22.7 billion during April-October 2022 from $21.3 billion in the equivalent period of last year. Increased FDIs should strengthen the Indian rupee.
Falling inflation readings with declining oil prices have increased expectations that the Federal Reserve will slow down the pace of rate hikes in the coming days. This should cut down the strength of the greenback and favor the strength of the rupee.
Any Caveat?
The MSCI India valuation premium to emerging markets (EM) at 98% remains high as compared to the long-term average of 45%, BofA Securities explained. But BofA Securities said a revival in China’s economic growth or policies could help reduce this premium.
Many economists expect India equities to continue outperforming global peers in the initial phase of 2023 as policy tightening will still be in place. However, as those economies start to loosen monetary policies and China’s growth gains momentum with the easing of its zero-Covid policy, India — once the outperformer — might lose its upper hand. So, an underperformance could be in the cards in the second half of 2023. High valuation of India will act as a headwind then.
ETFs in Focus
WisdomTree India Earnings Fund (EPI - Free Report) , Nifty India Financials ETF (INDF - Free Report) , First Trust India NIFTY 50 Equal Weight ETF (NFTY - Free Report) , Franklin FTSE India ETF (FLIN - Free Report) are some of the ETFs that possess relatively lower P/E ratios in the India ETF pack. So, investors may bet on these products, if they want to ride on the India ETFs’ winning momentum.
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India ETFs Beat S&P 500 in 2022: What Awaits in 2023?
India’s stock market has hit a brake in 2022, thanks to rising rate worries in the United States. Still, iShares India 50 ETF (INDY - Free Report) is off just 4.5% this year versus an 18.8% decline in the S&P 500 (as of Dec 16, 2022). The broader emerging market ETF iShares MSCI Emerging Markets ETF (EEM - Free Report) has lost about 22% so far this year.
India’s economy expanded 6.3% year over year in Q3 of 2022, slightly higher than the forecast of 6.2%, but well below 13.5% growth in Q2, as chaos caused by COVID lockdowns faded and resulted in a tough comparison, high prices and rising interest rates weighed on demand, and slowing global demand started to hurt exports.
But investors should not forget that India’s economy offers a great growth engine. The key Indian equity gauge Nifty 50 stock exchange may gain as much as 5.9% from its current 52-week high and touch 20,000 next year, thanks to FII inflows, according to BofA, as quoted on Moneycontrol. “Based on how macro things play out, we expect the Nifty to trade in a range from 17,000 to 20,000,” BofA Securities said.
The World Bank has revised India’s GDP growth forecast upward for the current financial year to 6.9% due to upbeat economic activities in the country, from the previous estimate of 6.5%. It expects the retail inflation of 7.1% in 2022-23, according to the World Bank’s latest India Development Update.
India’s economic performance has proved to be better than its peers, as the growth recovery has been robust while inflation has increased by much less than in other economies, per Barclays. Earlier this month, Reserve Bank of India Governor informed, that Net Foreign Direct Investment (FDI) stands at $22.7 billion during April-October 2022 from $21.3 billion in the equivalent period of last year. Increased FDIs should strengthen the Indian rupee.
Falling inflation readings with declining oil prices have increased expectations that the Federal Reserve will slow down the pace of rate hikes in the coming days. This should cut down the strength of the greenback and favor the strength of the rupee.
Any Caveat?
The MSCI India valuation premium to emerging markets (EM) at 98% remains high as compared to the long-term average of 45%, BofA Securities explained. But BofA Securities said a revival in China’s economic growth or policies could help reduce this premium.
Many economists expect India equities to continue outperforming global peers in the initial phase of 2023 as policy tightening will still be in place. However, as those economies start to loosen monetary policies and China’s growth gains momentum with the easing of its zero-Covid policy, India — once the outperformer — might lose its upper hand. So, an underperformance could be in the cards in the second half of 2023. High valuation of India will act as a headwind then.
ETFs in Focus
WisdomTree India Earnings Fund (EPI - Free Report) , Nifty India Financials ETF (INDF - Free Report) , First Trust India NIFTY 50 Equal Weight ETF (NFTY - Free Report) , Franklin FTSE India ETF (FLIN - Free Report) are some of the ETFs that possess relatively lower P/E ratios in the India ETF pack. So, investors may bet on these products, if they want to ride on the India ETFs’ winning momentum.