How to Deal With the India Valuation Conundrum
This article was originally published on ETFTrends.com.
There are at least two certainties regarding Indian stocks. First, equities in that country have been the stars among major emerging markets for several years. Second, there’s no shortage of market observers noting that Indian stocks are richly valued. Valuation alone isn’t a reason to buy or sell stocks. The fact is many Indian stocks are pricey, but investors want access to the asset class. The VanEck India Growth Leaders ETF (GLIN) can help.
GLIN tracks the MarketGrader India All-Cap Growth Leaders Index – a benchmark that emphasizes exposure to growth at a reasonable price (GARP).
There’s something to GLIN’s methodology. Year-to-date, the VanEck ETF is beating the MSCI India Index by about 240 basis points. Over the past 12 months, GLIN is higher by almost 46% while the India benchmark is up 29.66%.
GLIN Has Big Benefits
As the acronym implies, GARP allows investors to access growth stocks without having to pay an “admission tax.” That’s a benefit as is the long-term performance of the GARP methodology – one that’s stood the test of time in a variety of regions.
“By concentrating on GARP stocks, investors gain consistent exposure to companies that are not just growing, but are also attractively valued,” noted Sunny Bokhari, VanEck associate product manager. “Focusing on GARP stocks provides consistent exposure to more attractively valued companies versus the broad market index as measured by forward P/E.”
The GARP approach has proved meaningful with Indian equities. For the trailing one-, two- and three-year periods ending January 31, GLIN’s underlying index beat the MSCI India Index. Notably, that out-performance was accrued with GLIN’s index sporting lower price-to-book and price-to-earnings ratios than the MSCI India Index.
Add to that, there is an element of quality in the GARP approach. The number of constituents in the MarketGrader India All-Cap Growth Leaders Index with negative earnings and sales growth is significantly lower than what’s found in broader gauges of Indian stocks. That further highlights the allure of GLIN’s GARP approach.
“GARP focuses on companies with robust growth metrics, leading to higher sales and EPS growth compared to the broader market,” concluded Bokhari. “What sets it apart is its emphasis on value, resulting in lower valuation metrics like the price-to-earnings (P/E) ratio. This translates to a Price/Earnings to Growth (PEG) ratio that's almost half that of the broader market index. A lower PEG ratio indicates that investors are paying less for each unit of expected earnings growth.”
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