Well-documented is the fact that 2013 has been a dreadful year for exchange traded funds that track India, Asia’s third-largest economy.

Year-to-date, India ETFs are by far the worst performers of the major single-country BRIC ETFs. Additionally, India funds have not been able to keep pace with broader emerging markets ETFs like the iShares MSCI Emerging Markets ETF (EEM) . The WisdomTree India Earnings ETF (EPI) is down 13.2% this year while EEM is off just 1.2%. EPI has been 910 basis points more volatile than EEM.

Indian equities have been plagued by a weak rupee, widening current account deficit and a government viewed by outsiders as ineffective at curing the country’s economic ills. There is good news: India ETFs have started to turn around. In the past month EPI is up 6.1%. [Why India ETFs Are Soaring]

There have been legitimate catalysts. Last week, it was revealed that through a deal with the World Bank, India will launch its first offshore rupee bond effort, worth $1 billion. That news was followed by reports that said India was in talks with J.P. Morgan, Barclays and Citigroup about gaining entry into those banks’ emerging markets bond indices. [Your EM Bond ETF Might Add This Country]

In other words, India is looking to liberalize its debt markets in an effort to attract more foreign investors. India currently caps foreign investment in government debt at $30 billion. Foreign holdings of Indian bonds account for just 4%.

Investors are taking note of India’s efforts to rejuvenate its jaundiced investment thesis. “A sudden strengthening of the rupee and measures taken by the new Reserve Bank of India governor Raghuram Rajan to stabilise the currency appear to have turned the tide in favour of India, at least for now,” reports the Economic Times.

Investors are even putting cash back to work with India ETFs. Last month, both EPI and the iShares MSCI India ETF (INDA) had inflows north of $100 million. The PowerShares India ETF (PIN) hauled in $24.5 million.

Chart Courtesy: Economic Times

Disclosure: Tom Lydon’s clients own shares of EEM.

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.