Editor's pick: Originally published Jan. 15.

It's been a brutal start to the year for emerging markets. But even though they're grouped as one strategy or asset class, don't forget that each country has its own drivers and catalysts. Just because China's economy is slowing materially, doesn't mean India will experience exactly the same decline. Last year when the MSCI EM Index dropped 10%, India fell only 7%. The three percentage point differential may not seem like much, but achieving this relative outperformance is what many institutional investors crow about.

India's outperformance was driven, in part, by its lack of energy resources: it was able to save money on oil imports, improve its current account deficit, and amass $330 billion in FX reserves (almost the highest ever). With the start of a new year, here are three things to watch for in India.

Monetary Policy Remains Steady for Now

With inflation under control, the Reserve Bank of India has already cut interest rates by 125 bps. But don't expect any additional cuts until after the budget is presented in February. India's budget, following Prime Minister Modi's directive, is supposed to incorporate fiscal consolidation. The RBI will probably wait and see how the market responds, and whether inflation, which has picked up modestly, remains relatively steady. At least for the next month or two, there is some monetary policy visibility.

Follow the Earnings

Even though one Indian ratings agency projects earnings to be dismal over the next two years, quarterly earnings look to tell a different story. Because of depressed energy prices and modest inflation, several Indian materials companies should fare well because of lower input costs. One brokerage house contends that quarterly earnings of the NIFTY should increase 7%, compared to 4% in the previous quarter. When you factor out the energy and metals firms, earnings could jump 9%. As Indian earnings start to roll in, the better-than-expected numbers would drive stocks higher.

Parliamentary Progress

Despite much anticipation, the Goods and Services Bill wasn't debated or passed. The bill's goal is to establish a national value added tax, which would replace the state-by-state taxes in effect now. In this way, the national VAT would harmonize India under one system, making it easier to do commerce between and among states. This tax reform is one of Modi's key initiatives, and his ability to shepherd it through Parliament will indicate whether he is making marked progress as India's leader.

If monetary policy remains steady, quarterly earnings are healthy, and the Parliament makes legislative progress, that would be a robust sign to enter the market. And if these things are to happen, consider HDFC Bank (HDB - Get Report) , one of India's largest banks, which has a price-to-earnings ratio of 21.6 and ROE of 18.5%. It's a blue chip that will benefit if India's economy performs well.

HDB Chart HDB data by YCharts

 

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned. Kabir Sehgal is the author of New York Times bestseller Coined: The Rich Life of Money And How Its History Has Shaped Us and The Wheels on the Tuk Tuk. He is also a Grammy-winning producer. Follow him on Facebook and Twitter.