To start 2023, the emerging markets story commanding the most attention is China. That makes sense because that is the largest developing economy, and stocks there are rebounding after the country shed its coronavirus restrictions.
However, investors shouldn’t sleep on India — itself one of the largest developing economies. In fact, India is the third-largest Asian economy, trailing only China and Japan. A variety of U.S.-listed exchange traded funds provide exposure to Indian stocks with one of the more seasoned country-specific options being the WisdomTree India Earnings Fund (EPI ).
The $768.31 million EPI celebrates its 15th birthday next week, and while that’s a milestone unto itself, the ETF merits a look this year for more tangible reasons.
“We reiterate our Favorable View of India equity ETFs. Amish Shah expects volatility throughout the year, but a 19,500 year-end Nifty 50 target implies a 9% return. The downside scenario puts India equities 5% lower on the year (17,000) while the upside implies a 12% return (20,000),” said Bank of America in a recent research note.
Assuming a recession arrives in material fashion, EPI and Indian stocks won’t be immune, but the aforementioned bear case scenario of a loss of 5% for Indian equities is far more attractive than the declines that broader domestic and emerging markets benchmarks could be subject to in an economic contraction.
“India equities are expected to drop by 5% in our strategists’ bear case scenario compared to -25% in the US under the same scenario. The Indian economy tends to hold in during recessions with contractions usually lasting just 1-3 quarters. Returns coming out of recessions typically lead the S&P 500 by double digits,” added Bank of America.
On a related note, EPI becomes all the more attractive because the ETF’s underlying index — the WisdomTree India Earnings Index — mandates that member firms are profitable. Profitable companies are vulnerable to share price declines in recessions, but they’re likely to fare better than money-losing counterparts, regardless of domicile.
Other factors supporting the India investment thesis are government support for financial markets, efforts to liberalize those markets to capture more foreign investment, and commitment to clean technologies and renewable energy.
“In addition to opening government monopolies, our strategists see five structural themes that should bolster equity markets. Rapid infrastructure ramp up, de-carbonization efforts, onshoring, improving tax collections, and digitization & financial inclusion are all long term drivers that make holding India equities attractive. India’s population is also expected to surpass China this year as demographic trends remain robust,” concluded Bank of America.
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