More Misery Ahead For India ETFs

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

. 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

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

has been worse. Things were especially bad for India ETFs in July. While the iShares China Large-Cap ETF

and the Market Vectors Russia ETF

turned in solid performances, EPI and the iShares S&P India Nifty 50 Index

plunged an average of 4.8 percent, dispelling the notion of

.

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,

. Related:

. 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

, the EGShares India Small-Cap ETF

and INDY all saw modest inflows.

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,

. On the other hand, plenty of market observers

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. For more on ETFs, click

.