Though they’ve retreated a bit in recent days, India stocks and related ETFs are off to strong starts in 2024. The MSCI Emerging Markets Index is saddled with a year-to-date loss. But the MSCI India Index is higher by nearly 5% since the start of the year.
That’s good news. It’s also a reminder that investors considering exposure to that country via U.S.-listed ETFs can be rewarded by performing some homework. Take the case of the VanEck India Growth Leaders ETF (GLIN). As of April 17, GLIN was beating the MSCI India Index and the emerging markets benchmark. It was also slightly outpacing the S&P 500.
GLIN follows the MarketGrader India All-Cap Growth Leaders Index. The ETF has a habit of delivering out-performance. Over the past three years, it has beaten the MSCI India Index by a wide margin. The same is true of the fund when comparing it to broader measures of domestic and emerging market equities.
GARP Powers GLIN
While India stocks have been among the world’s best performers in recent years — a trait not limited to emerging markets, but rather the entire global equity complex — concerns abound among investors that stocks in the behemoth Asian economy are richly valued.
That’s the cost of admission for gaining exposure to the growth offered by India stocks. But GLIN ameliorates that scenario by focusing on growth at a reasonable price (GARP). Said another way, the ETF delivers on the promise of India’s growth story while not subjecting investors to excessively high earnings multiples.
“The GARP approach identifies companies with strong growth characteristics (or those exhibiting strong earnings and revenue growth) with prices that do not reflect excessive optimism, potentially offering a better risk/reward profile compared to focusing only on growth or value,” according to VanEck.
GLIN’s approach makes sense today, because while valuations on India aren’t as high today as they were a few years ago, those multiples still reside at the higher end of the 20-year average. By using GARP, a security’s price/earnings growth ratio takes precedent over simple price/earnings, which serves the aim of reducing exposure to unprofitable firms.
As noted by VanEck, a PEG ratio of below 1 is generally considered appealing. The PEG ratio currently sported by GLIN is 0.8, well below the 1.4 found on the MSCI India Index. Additionally, the percentage of negative EPS companies in GLIN is significantly less than what resides in the India benchmark.
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