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By Scott Martin

The heaviest weighted stock in India has plunged nearly 16% since its earnings spooked global traders on Friday. Despite the carnage, reaction from analysts and ETF investors has been muted - revealing that the selling may have gone more than a little too far.

Infosys (INFY) is the largest Indian stock listed in the United States, the first Indian IT giant to join the Nasdaq, and a core holding of just about every large-cap India fund you can find.

Unfortunately, the company's technology-driven constituency wanted INFY to confirm its business is still growing at a rate of maybe 12% to 14% a year. On Friday, management was unwilling to go above 10% - and the bloodshed began.

That's all old tape by now, though and enough verbiage has been spilled in the aftergame. What's interesting is that Indian funds have somehow managed to keep their asset values flying despite INFY's disgrace.

INFY is the top holding in the iShares MSCI India Index ETF (INDA), for example, starting the month at a weight of 10.12% of the portfolio. The sell-off has since eroded that allocation to 8.50%, destroying hundreds of thousands of dollars in shareholder equity in the process.

But if everything else in India was plunging in sympathy, we would expect to see substantial losses here. Add INFY's losses with the 7% decline in arch-rival Wipro (WIT) - another 1.7% of the fund's holdings - and INDA should be bleeding, right?

Instead, INDA is down a scant 0.4% since Thursday night. Other India funds are practically untouched, despite having 6% to 9% of their money invested in INFY shares. The worst hit, the iPath version of the MSCI India Index portfolio (INP), is still weighted over 11% in INFY, but only dipped 0.8% in sympathy.

Crunch all the numbers, and you'll not only see that Infosys was an isolated event, but that money pouring out of this stock and the IT sector simply rotated into other large-cap Indian names. On a net basis, the other holdings in these funds actually gained ground. That's what any diversified portfolio is supposed to do, so it's nice to see it actually proved in principle here.

From here, the question is whether INFY has been punished enough. Despite a trickle of third-day downgrades from Western analysts at firms ranging from Goldman Sachs and Deutsche Bank on down the food chain, most of the ratings cuts acknowledge that this stock is now more or less fairly valued at around $48.

Even the rare "sell" from firms - like Credit Lyonnais Securities Asia (CLSA) somewhat perversely acknowledges that if INFY proves to be an "underperformer" in Bombay, that might entail the stock appreciating roughly 10% more by the end of the year.

To justify that kind of logic, the broad Indian market - and the funds that reflect it - will have to run rings around most forecasts for Wall Street in the next nine months.

That would make funds like INDA and company a huge opportunity for U.S. traders, even if INFY remains a huge drag on their overall performance.

And while growth of "only" 8% to 10% may not be enough to propel INFY's business into the stratosphere, its shares now look cheap compared to just about everything else you can play in India. INFY's P/E is now 12. Elsewhere in the Indian IT group, WIT is still fetching 23 times earnings after its recent plunge, and upstart Patni (PTI) is trading north of 33.

Maybe WIT and PTI are still earning a bigger growth multiple than INFY's apparently less robust business prospects deserve. But if the Indian IT business is really growing at a rate of 9% to 14% and INFY is targeting the middle of that trend for itself, how much faster can these companies really be expanding their own businesses? Growth rates of 20% to 30% just don't add up here.

The only alternative - that INFY is now deeply undervalued compared to its peers - is almost too bizarre to contemplate, but that's what the numbers indicate.

Of course, if you're looking for value in India and maybe even better growth, there's always car-maker Tata Motors (TTM). Mock the ultra-cheap Nano all you want - TTM is cheaper than INFY on an earnings basis and analyst consensus expects it to grow at a rate of 15% in the looming fiscal year.

Source: Could Infosys Really Be Deeply Undervalued?