Following a multiyear run in which Indian equities and related ETFs were emerging market leaders and among the best-performing ex-U.S. stocks, the group retreated in the first quarter even as other international markets sprang to life. With Q2 just underway, ETFs like the WisdomTree India Earnings Fund (EPI ) and the WisdomTree India Hedged Equity Fund (INDH ) are dealing with year-YTD losses.
But recent weakness in India equities could be the buying opportunity some market participants have been awaiting. As highlighted by a nearly 9% gain by EPI over the past month, it appears some investors aren’t waiting.
Now the world’s largest country by population, India is home to other favorable demographic trends. These include a young population relative to other major economies, such as the U.S., China, and Japan. Those demographic advantages could make EPI and INDH attractive long-term bets for risk-tolerant, tactical investors.
India: An Evolving Market
Gone are the days when India ETFs and the market itself were heavily reliant on IT firms to drive equity market upside. That is to say the market there has evolved. For its part, EPI — one of the oldest and largest ETFs in the category — reflects that evolution, as tech is merely the ETF’s third-largest sector exposure.
“It’s important for investors to recognize how the complexion of India’s stock market has changed,” noted Morningstar’s Dan Lefkovitz. “In contrast to the global trend, the Morningstar India Index has seen the technology sector decline in share over the past 10 years. [Technology stocks have grown to represent more than 30% of the Morningstar US Market Index. But] India’s tech sector has declined from 20% of the market in 2015 to just 12% today.”
Of note to investors is that unlike China or some emerging economies in the Asia-Pacific region, India isn’t heavily dependent on exports. Actually, the country appears to be taking a page from the U.S. It is looking to domestic consumption and spending to drive economic growth.
“Meanwhile, India’s revenue mix has also become more domestic. The Morningstar India Index currently sources 75% of its revenue domestically, whereas in 2021, that figure was 69%,” added Lefkovitz.
May Provide India Stocks a Buffer
For its part, EPI allocates about 40% of its roster to domestically focused energy and financial services stocks. Plus, India’s emphasis on domestic consumption could provide stocks there with a buffer when the Trump administration is pursuing tariffs against a slew of U.S. trading partners.
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