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By: The ETF Professor

With seven months of 2013 I the books, it might be hard to imagine things getting any worse for BRIC equities and the ETFs that hold those stocks. Yet that is exactly what could happen with already downtrodden India stocks.

The best thing that can be said of India ETFs this year is that they have moved in fits and starts and it has been much more of the former than the latter. Due to sagging growth, a plunging rupee that has touched multiple record lows against the U.S. dollar and widening current deficit, ETFs tracking Asia's third-largest economy.

Year-to-date, the WisdomTree India Earnings ETF (NYSEARCA:EPI) is off 19.2 percent, making the it the second-worst performer among the four major single-country funds tracking BRIC nations. Only the iShares MSCI Brazil Capped ETF (NYSEARCA:EWZ) has been worse. Things were especially bad for India ETFs in July. While the iShares China Large-Cap ETF (NYSEARCA:FXI) and the Market Vectors Russia ETF (NYSEARCA:RSX) turned in solid performances, EPI and the iShares S&P India Nifty 50 Index (NASDAQ:INDY) plunged an average of 4.8 percent, dispelling the notion of possible second-half upside.

Goldman Call
Near-term pressure on Indian equities could accelerate after Goldman Sachs pared its rating on the country's stocks to Underweight. "Recent activity data has been sluggish with no signs of a pick up in investment demand Sunil Koul, an analyst at Goldman Sachs in Hong Kong, Bloomberg reported.

Indian stocks have been pressured by the country's soaring current account deficit, one that remains uncomfortably the Reserve Bank of India's desired 2.5 percent of GDP range. India has a two-fold problem on that front: It imports the bulk of its oil needs and oil prices are high. Second, the recent slide in gold prices has lead to increased imports of the yellow metal to already gold-mad India.

Still, investors, at least until recently, have stuck by Indian stocks. Two-month outflows from Indian shares have reached a $2.8 billion at the end of July, but net inflows so far this year were $12.3 billion, according to Bloomberg. Outflows of $2.8 billion are roughly a third of what investors pulled out of South Korean stocks.

In July, the PowerShares India Portfolio (NYSEARCA:PIN), the EGShares India Small-Cap ETF (NYSEARCA:SCIN) and INDY all saw modest inflows.

Cheap, Of Course
If there is a looming catalyst to possibly spur India ETFs higher later this year it valuation. Indian stocks, while not deeply discounted relative to the broader emerging markets universe, are cheap than their Brazilian peers and several other smaller Asian markets.

EPI's underlying index had a P/E ratio of 10.2 and a price-to-book ratio of 1.5 at the end of the second quarter, according to WisdomTree data.

On the other hand, plenty of market observers have deemed emerging markets cheap and that has not been much of a catalyst to this point. And do not forget that Goldman cited valuation as a reason to buy Indian stocks in March.

Disclaimer: Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.