Investors on Wall Street still seem to like one of the big emerging global markets — with a caveat or two.
India is the last standing "BRIC" — the term coined to refer to the once-rising national powerhouses of Brazil, Russia, India and China. Buying into the group has become an increasingly dangerous proposition in the last year, with lower commodity prices, a stronger U.S. dollar and general market volatility hurting all four.
But looked at individually, the economy in India would appear to have advantages over the other three. Brazil is dealing with heightened political uncertainty, high inflation and low growth. China continues to disappoint on the economic front despite a series of measures unveiled by the People's Bank of China to stimulate growth. And Russia is suffering from a drop in oil prices as well as Western sanctions designed to punish its military adventurism in Ukraine.
India has its own set of challenges, but it's remained a compelling investor story to many, especially since its economy is expanding as its inflation declines — a combination seen as ideal by many emerging market investors. The country's central bank this week cut interest rates to a 4 1/2-year low.
"India is the best of the BRIC's to invest in," said Nandini Ramakrishnan, global market strategist at J.P. Morgan Asset Management.
At the U.S.-India Business Council leadership summit in Washington last week, Sunil Mittal, group CEO of New Dehli-based conglomerate Bharti Enterprises and an Indian billionaire, made the same point, saying that economic data point to India as the performer among the large, rising countries.
Goldman Sachs is very bullish on India, forecasting its economic growth to rise to 8 percent during the period fiscal year 2016-20, compared with 7 percent in fiscal 2012-15. "In a faster reform scenario, India's potential growth could rise to 9 percent due to reforms to labor, infrastructure and education," wrote Goldman's Andrew Tilton in a research note to clients.
But that story is well known, and according to UBS, India has become a crowded trade. "Everyone loves India," said Geoff Dennis, head of Global Emerging Market Strategy at UBS.
While India has held up better than the other emerging markets, it pulled back significantly over the summer. Two India-focused exchange-traded funds, the Wisdomtree India Earnings and MSCI India Price Return, are down almost 10 percent and more than 8 percent in the last three months, respectively.
"No, not too late to buy Indian equities," said Ramakrishnan, "but selectivity is increasingly crucial."
The country's upcoming earnings season will also be important in figuring out which companies an investor should get exposure to, said another analyst.
Valuations alone could deter investors. UBS notes that the Indian stock market is not cheap, trading at 17 times forward earnings, versus its long-term average of 14.4 times.
There are also a growing number of skeptics who are questioning Indian government GDP revisions that put India on track to outpace China in 2015. India Finance Minister Arun Jaitley reassured investors in a recent interview with CNBC, saying those numbers are "very credible."
Prime Minister Narendra Modi played a big role in drawing foreign investors into India in 2014, but he's also seen as one of the reasons market participants have become increasingly cautious in 2015.
"What story is Modi trying to convey by traveling around the world and not spending time in India tackling the issues that he said he would?" said an Indian health-care CEO asked not to be identified.
That view is held by many market watchers within India, many of whom are waiting anxiously for reforms unveiled in the national budget to feed through into the real economy. Discontent among locals in India could hurt Modi's party in an upcoming election this fall in Bihar, a key geographical region.
Modi's defenders say his plan is a long-term story that will take years to play out.
"The reform program of Prime Minister Modi may be being slowed by political constraints; however, it is ongoing and will continue to progress, and we expect a solid pickup in GDP growth to 7.5 percent next fiscal year which will be the best growth performance in emerging markets," said Dennis of UBS.