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What Lies Ahead for India ETFs?

Wall Street is rallying as U.S. equities touched record highs led by gains in energy and tech. Greater merger activity contributed to gains in the U.S. equity markets. Moreover, oil prices touched record highs owing to tensions in Saudi Arabia and reduction in production, leading to gains in energy shares. Strength in Wall Street and greater global optimism provided support to India equities.


Economic Fundamentals


The Reserve Bank of India (RBI) kept the interest rate unchanged at 6% in its October monetary policy meeting, owing to fears of rising inflation. Moreover, the RBI cut its economic growth forecast for fiscal 2018 to 6.7% from 7.3% (read: India ETFs Rally after Central Bank Holds Rates).


India’s GDP grew 5.7% annually in the April-June quarter of 2017, a three-year low, owing to headwinds related to prime minister Narendra Modi’s demonetization move in November and the introduction of a major tax reform in the form of Goods and Service Tax (GST). World Bank reduced India’s GDP growth forecast to 7% for 2017-18 from its earlier forecast of 7.2%.


Modi’s plans of injecting cash into state-run banks saddled with bad loans are expected to lead to a boom in foreign investment. Cumulative foreign direct investment (FDI) into India reached $114.4 billion in the last two financial years of 2015-16 and 2016-17 compared with $81.8 billion in the 2011-2014 period, per a livemint article citing a latest report by KPMG.


What Lies Ahead?


Markets are scaling new highs. This is primarily because of India’s growing appeal as a business destination. In the latest World Bank rankings, India jumped 30 positions to 100th in terms of ease of doing business. This is also expected to boost FDI.


Greater optimism relating to fiscal Q2 earnings has also led to gains in the Indian equity markets. Consumer prices increased 3.28% year over year in September compared with a Bloomberg survey forecast of 3.53%. The markets expect the RBI to cut rates in its December policy meeting in order to revive growth. In a recent development, the country’s largest lender, State Bank of India (SBI), cut its marginal cost-based lending rates (MCLR) by 5 basis points.


However, there is a lot of uncertainty in the markets. Oil has been rallying as Saudi Arabian crown prince Mohammed bin Salman looked to tighten his grip on power by ordering a crackdown with the arrests of royals, ministers and investors. Increased geopolitical risks relating to Iran also led to gains. OPEC is also widely expected to extend production cuts and a huge reduction in U.S. oil drilling provided support to prices. However, rising oil prices is a negative for emerging markets like India as it adds to inflation woes. India equities as a result pared some of its earlier gains.


Let us now discuss a few ETFs focused on providing exposure to the emerging market nation (see all Asia-Pacific (Emerging) ETFs here).


iShares MSCI India ETF INDA    


This fund provides exposure to large and mid-sized Indian equities.


It has AUM of $5.4 billion and charges a fee of 71 basis points a year. Financials, Computer-Software and Consumer Discretionary are the top three sectors of the fund, with 23.0%, 12.6% and 12.3% allocation, respectively (as of Nov 3, 2017). Housing Development Finance Co, Reliance Industries Ltd and Infosys Ltd are the top three holdings of the fund, with 9.0%, 8.3% and 5.7% allocation, respectively (as of Nov 3, 2017). The fund has returned 27.5% in a year and 33.7% year to date (as of Nov 6, 2017). INDA currently has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.


WisdomTree India Earnings Fund EPI


This fund provides exposure to Indian equities in multiple capitalization segments.


It has AUM of $1.8 billion and charges a fee of 84 basis points a year. Financials, Energy and Information Technology are the top three sectors of the fund, with 23.6%, 19.6% and 15.7% allocation, respectively (as of Nov 6, 2017). Reliance Industries Ltd, Infosys Ltd and Housing Development Finance Co are the top three holdings of the fund, with 9.1%, 6.7% and 6.1% allocation, respectively (as of Nov 6, 2017). The fund has returned 31.4% in a year and 35.4% year to date (as of Nov 6, 2017). EPI currently has a Zacks ETF Rank #2 with a Medium risk outlook.


iShares India 50 ETF INDY


This fund provides exposure to large-cap Indian equities.


It has AUM of $1.2 billion and charges a fee of 93 basis points a year. Banks, Refineries/Marketing and Computer-Software are the top three sectors of the fund, with 26.6%, 10.7% and 9.9% allocation, respectively (as of Nov 3, 2017). Reliance Industries Ltd, Housing Development Finance Co and ITC Ltd are the top three holdings of the fund, with 7.8%, 7.0% and 5.6% allocation, respectively (as of Nov 3, 2017). The fund has returned 34.1% in a year and 26.8% year to date (as of Nov 6, 2017). INDY currently has a Zacks ETF Rank #2 with a Medium risk outlook.


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ISHARS-SP INDIA (INDY): ETF Research Reports
 
ISHARS-M INDIA (INDA): ETF Research Reports
 
WISDMTR-IN EARN (EPI): ETF Research Reports
 
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