India’s economy is currently experiencing a slowdown. But the country is showing some relative strength compared to other global markets and there may be a way to play it with options. The government projects a growth rate of 6.4% for the fiscal year 2024 to 2025, marking the slowest pace in four years. Despite this deceleration, India is expected to remain the fastest-growing large economy globally. The United Nations forecasts India’s growth at 6.6% in 2025, outpacing other major economies. Prime Minister Narendra Modi, speaking at the 25th National Youth Festival in New Delhi on Sunday, said, “We have a 25-year golden period ahead of us,” while forecasting that the country’s economy will exceed $10 trillion by the end of the next decade. For perspective, according to the World Bank, India’s 2023 GDP was just under $3.6 trillion. Thus, India’s economy would need to grow at about 6.3% per year to achieve that. For context, the projected growth rates for other major economies are considerably lower. In the United States, growth is expected to slow from 2.8% to 1.9% in 2025 – although my expectation is slightly more optimistic. China’s growth is anticipated to decrease slightly from 4.9% to 4.8%. However, China is facing numerous headwinds and a potential debt bubble, and one wonders how reliable their data is, mainly when what it implies about the country’s economy is less than rosy. Modest recovery is expected in the EU, Japan, and the United Kingdom. However, secular demographic headwinds will likely prevent growth in these regions from keeping pace with the US. INDA 1Y mountain iShares MSCI India ETF, 1 year Several factors have contributed to India’s recent economic slowdown, including reduced corporate investments and a slowdown in manufacturing activities, which have dampened economic growth. Elevated inflation levels have eroded consumer purchasing power, decreasing demand and consumption. External factors, including potential changes in U.S. trade policies and global economic conditions, have added to the financial challenges. The Reserve Bank of India’s monetary policy decisions, aimed at controlling inflation, have also influenced economic activity. Despite the slowdown, sectors such as agriculture are expected to support the economy. The government is considering measures to invigorate the economy, including potential adjustments to monetary policies and fiscal strategies. Forecasting topline and earnings growth is complex under the best circumstances. Still, in mature economies, the pattern is that the best-managed publicly traded businesses tend to grow faster than the underlying economy, and earnings grow faster than the top line. Interestingly, the MSCI India Index is trading around 24.8 times forward earnings, very close to the multiple of the S & P 500. Yet, the underlying economy is expected to grow more than twice as fast. The “term structure” of options prices for INDA , an ETF that tracks the MSCI India Index, is relatively flat – meaning that the “implied volatility” of options expiring in February and March are similar to longer-dated options. Consequently, the decay associated with a longer-dated call purchase, such as June expiration, can be offset by the sale of nearer-dated calls, puts, or both. I’ve outlined an example of a long at-the-money June call financed partially by the sale of a nearer-dated February strangle below: Sell INDA March 21 $49 put Buy INDA June 20 $52 call Sell INDA March 21 $55 call DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
