The Indian stock market was one of the top performing markets after the bear market ending in 2009. Recently, however, its performance has flipped. Over the last year, it has seen one of the worst declines, having the sixth largest drop as measured by the PowerShares India ETF relative to other country ETFs. This recent poor performance has, in fact, wiped out a little more than half of the gains since its lows in 2009.
With the Indian stock market having dropped so much, it is actually beginning to look slightly cheap based on several valuation metrics. The P/E and P/B ratios for the SENSEX index are both moderately below their median historical level. In addition, the dividend yield is considerably above its historical average.
Looking forward, I think there is a very good chance that the Indian stock market will outperform US stocks. Most valuation metrics for US stocks are higher than their historical average, indicating that returns will be below average. With valuation metrics for Indian stocks indicating above average returns, India may very well be one of the few sources of outperformance. Investors looking to buy Indian stocks easily can consider the PowerShares India ETF (NYSEARCA:PIN) or the WisdomTree India Earnings ETF (NYSEARCA:EPI).
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in EPI over the next 72 hours.