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India ETFs Rallying Hard: Is Any Upside Left?

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India’s stock market is hovering at a record high. Lower COVID-19 cases and pent-up demand have acted as the tailwind to the Indian market. A rebound in demand has been aiding many industries, starting from autos, where supply is suppressed due to chip shortage, or real estate, which is seeing strong bookings to cash in on the low rates. Better-than-expected gross domestic product and goods and services tax (GST) collection point toward a sustainable rebound in earnings, per a source.

“Strong liquidity and positive macroeconomic cues are also likely to support domestic markets to continue their movements to record levels. The consumer demand will be closely monitored as it is expected to pick up, given the festive season has begun and the restrictions are continuing to ease. However, concerns on the third wave of the (COVID-19) pandemic still hover," Motilal Oswal said in its report, as quoted on a source.

India is expected to post strong economic growth in the coming quarters, even as inflation, led by food prices, is likely to remain elevated, S&P Global Ratings said recently. The economy is expected to log 9.5% growth in the current fiscal year, followed by 7% expansion in the next year, it predicted. The easing of retail inflation to 5.3% for August is a plus as it would help the Reserve Bank of India maintain its easy monetary policy stance a little longer.

Can India Equities Rally Higher?

Nifty50’s one-year and two-year forward PE multiples are the highest among emerging market economies. “Episodic shifts in risk appetite have rendered equity markets frothy with stretched valuations,” the Indian central bank said lately, per an Economic Times article.

The growing optimism for the Indian stock market is also reflected in the fast fall in the equity risk premia for India. The RBI report said that the equity risk premia for India dropped to 3.2% in September from 6.3% in March 2020.

Analysts have suggested that the market needs a healthy correction to prevent the “froth building up in various pockets”, per the above-mentioned Economic Times article. Against this backdrop, we highlight a few India ETFs with relatively lower P/E at the current level. Investors with a strong stomach for risks and those who have faith in further Indian market rally, may tap the below-mentioned ETFs.

ETFs in Focus 

WisdomTree India Earnings Fund (EPI - Free Report) – P/E 17.74X

The WisdomTree India Earnings Index is a fundamentally weighted index that measures the performance of companies incorporated and traded in India that are profitable and that are eligible to be purchased by foreign investors as of the index measurement date. Weighted Index based on their earnings in their fiscal year prior to the Index measurement date adjusted for foreign investors. The fund charges 84 bps in fees.

First Trust India NIFTY 50 Equal Weight ETF (NFTY - Free Report) – P/E 17.83X

The underlying NIFTY 50 Equal Weight Index is an equally weighted index that tracks the performance of the 50 largest and most liquid Indian securities listed on the National Stock Exchange of India. The fund charges 80 bps in fees.

Nifty India Financials ETF (INDF - Free Report) – P/E 22.12X

The underlying Nifty Financial Services 25/50 Index measures the performance of companies in the Indian financial market, including banks, financial institutions, housing finance, insurance companies and other financial services companies. The fund charges 75 bps in fees.

Invesco India ETF (PIN - Free Report) – P/E 22.19X

The underlying FTSE India Quality and Yield Select Index is comprised of Indian equity securities traded on regulated stock exchanges in India. The India Index is designed to represent the Indian equity markets as a whole. The India Index has 50 constituents, spread among the following sectors: Information Technology, Health Sciences, Financial Services, Heavy Industry, Consumer Products and Other. The fund charges 78 bps in fees.

iShares India 50 ETF (INDY - Free Report) – P/E 27.68X

The underlying Nifty 50 Index measures the equity performance of the top 50 companies by free float market capitalization whose equity securities trade in the Indian securities markets. The fund charges 90 bps in fees.

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