India ETFs: Looking for the ‘Sweet Spot’

August 5th at 12:00pm by Tom Lydon

India may hit the demographic “sweet spot” within the next decade. There’s a lot of fixing up and balance-striking the country needs to do to keep its exchange traded funds (ETFs) upwardly mobile.

Currently, the savings rate in India is about 35% of GDP and it is expected to further increase as income and population grow, writes Niranjan Rajadhyaksha for livemint. Double-digit growth may be sustainable if domestic savings rate hits 40% of GDP and if the government keeps deficits in check. However, previous years have shown that India’s economy tends to overheat as the economy expands beyond 8.5%. [India ETFs: Bull or Bear?]

Additionally, India has been tackling an inflation rate of 10.55%. Observers note that the lack of skilled labor puts pressure on wage costs, along with prices of goods and services. The government also adheres to pro-cyclical fiscal policies that don’t efficiently help the economy. [4 Things Firing Up India ETFs.]

India’s Central Bank last week raised rates for the fourth time this year, raising concerns that the bid to stomp out inflation may stifle growth, according to AFP. The economy grew 8.5% in the last quarter, and is projected to grow that much this year. The government believes that double-digit growth is necessary to aid the 40% who are in dire poverty. [Two New India ETF Plays.]

According to HSBC, the Purchasing Mangers Index (PMI) for India increased to 57.6 from 57.3, which may push the Central Bank to another round of interest rate hikes, reports Penny MacRae for AFP. Frederic Neumann, HSBC co-head of Asian economics, expects robust demand to keep fueling manufacturing orders.

A little more than half of India’s entire workforce is in agriculture, but services, only one-third of the labor force, accounts for more than half of India’s output, according to the CIA World Factbook. The country doesn’t rely on foreign imports and domestic demand has proven to be a key component of growth.

Can India find that balance that allows them to keep growth and inflation in check while still progressing at a healthy rate? Only time will tell.

For more information on India, visit our India category. There are seven ways to play India directly, according to the ETF Analyzer, including these five.

  • PowerShares India (NYSEArca: PIN)
  • WisdomTree India Earnings (NYSEArca: EPI)
  • iShares S&P India Nifty 50 Index (NYSEArca: INDY)
  • EG Shares Indxx India Small Cap ETF (NYSEArca: SCIN)
  • EG Shares Indxx India Infrastructure Fund (NYSEArca: INXX)

Max Chen contributed to this article.

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.