India Internet ETF Home to Some Bargains

One result of domestic growth stocks, including internet equities, slumping in the first half of the year is that there are now attractive valuations to be found in the group.

Fortunately for investors eyeing international exposure, the theme of discounted growth names isn’t confined to the U.S. Nor is it confined to developed markets. Some emerging markets, including India, are homes to high-growth stocks now trading at attractive valuations.

Among exchange traded funds, the India Internet and Ecommerce ETF (NYSE Arca: INQQ) stands out as an avenue for accessing some Indian growth stocks that are currently sporting compelling multiples. INQQ tracks the India Internet and Ecommerce Index and holds slightly more than 20 stocks, several of which fit the bill as inexpensive.

“It is driven by the decline in funding activity (P/E investment is down 40% from the peak in December 2021) and fall in valuations (Global/Indian P/S is down 55/35%),” said India’s HDFC Securities in a recent note to clients.

Among the INQQ components the research firm views as attractively valued is information technology services provider Info Edge, which HDFC rates a “buy.”

“Hiring activity in the IT sector is strong, demand for non-IT talent is also witnessing traction and sectors like BFSI, retail, travel and transportation are showing strength. Naukri will grow at 15-20% CAGR and the EBITDA margin range will be 55-58%. 99acres and Shiksha will do well while Jeevansathi will witness a decline due to a change in strategy,” according to the bank.

As of August 17, Info Edge is INQQ’s second-largest holding at a weight of 8.18%, according to issuer data, confirming that its status as an undervalued name is relevant to investors evaluating the fund.

E-commerce firm IndiaMart and social messaging platform Tanla Platforms are also among the Indian growth equities HDFC considers attractively valued.

“Higher investment in sales channel will boost growth, targeting 15%+ growth in paid suppliers. The churn has reduced and the quality of suppliers improving. Network effect and greater traffic will improve the RoI for a seller. Margins will be in the range of 30-35%, vs 25% pre-pandemic. We like the quality of the franchise/platform,” the brokerage firm said of IndiaMart.

IndiaMart and Tanla Platforms combine for nearly 7% of the INQQ portfolio.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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