India’s stock market has been a standout performer in recent times, drawing attention from global investors. All India ETFs have returned in the range of 3% to 10% so far this year. Let’s delve a little deeper to analyze the opportunities and risks associated with investing in India's dynamic market.      

India's Economic Momentum

India set a global benchmark with its forecast annual growth rate of 7.3% for the fiscal year ending in March 2024. This impressive figure positions India as a leader among the major global economies. The timing is particularly significant as it precedes the national elections, offering a potential boost to prime minister Narendra Modi's campaign.

Upcoming General Elections: Modi Likely to Win?

General elections are scheduled in India between April and May, where market-friendly prime minister Narendra Modi seeks reelection. Modi's tenure has seen significant investments from U.S. tech giants in India.

Sustaining a growth rate above 7% for a third consecutive year, particularly in a global slowdown context, could significantly enhance Modi's chances of securing a third term.

Foreign direct investment in India has surged in recent years, increasing from $36 billion in 2014 to $70.9 billion in 2023. This influx of investment is driven by India's growing reputation as a business-friendly destination.

Emergence of a Global Consumer Market

India's economy is undergoing a significant transformation.Narendra Modi’s era is marked by strategic policy initiatives aimed at boosting growth and attracting foreign investment. Modi's leadership has been viewed as a determined effort toward digitization, infrastructural development and tax incentives, per a Barron’s article, as quoted on MarketWatch.

India's Tech and Business Ambitions

India is actively promoting itself as a global hub for technology and business. States like Maharashtra, Tamil Nadu, Telangana and Karnataka are positioning themselves as tech hubs for manufacturing and AI development,  as quoted on CNBC.

Major tech companies, including Apple, Google, and Amazon, have made significant investments in India. India is actively attracting investments from U.S. chipmakers. Companies like AMD and Micron are planning substantial investments in the semiconductor industry in India.

Fed to Cut Rates in Late 2024?

The Fed is likely to slash interest rates by late 2024, which should lower the strength in the U.S. dollar. If this happens, emerging market currencies would gain strength. And like most emerging economies, India’s economy too should experience a tailwind.

India’s Booming Presence as Pharma & Tech Outsourcing Hub

India boasts a great demographic dividend with a large, youthful and educated workforce. This positions itself as a favorable destination for industries like information technology and pharmaceutical outsourcing. This demographic advantage, coupled with a growing consumer base, is a plus for India ETF investing, per the Barron’s.com article.

ETFs to Play

Against this backdrop, below we highlight a few India ETFs that have relatively lower valuation in the space, but have seen decent momentum this year. Notably, Columbia India Consumer ETF (INCO Quick QuoteINCO - Free Report) has the highest P/E of 35.18X.

VanEck India Growth Leaders ETF (GLIN Quick QuoteGLIN - Free Report) – Up 9.1% YTD; P/E: 12.33X

WisdomTree India Earnings Fund (EPI Quick QuoteEPI - Free Report) – Up 9.3% YTD; P/E: 12.38X

First Trust India NIFTY 50 Equal Weight ETF (NFTY Quick QuoteNFTY - Free Report) – Up 7.6%; P/E: 17.01X

iShares MSCI India Small-Cap ETF (SMIN Quick QuoteSMIN - Free Report) – Up 6.2%; P/E: 21.25X