There were five sectors in this Index that underperformed and five sectors that outperformed. Some notable points:
• The Underperformers: This group consisted of Industrials, Utilities, Materials, Financials and Energy. Their average return over the period was worse than -25%, about 12% worse than the performance of WTIND (-13.2%). These underperforming sectors received about 5% additional weight at this year’s annual rebalance screening. The greatest two weight increases were to Financials and Utilities, whereas Energy and Industrials were largely unchanged in weight.
• The Outperformers: This group consisted of Consumer Discretionary, Health Care, Consumer Staples, Information Technology and Telecommunication Services. Their average return over the period was approximately 11%, about 24% better than the performance of WTIND as a whole. The outperformers saw their weight reduced by 5%. The greatest reduction in weight came from Information Technology and Consumer Discretionary.
• Correlation to the Rupee—Results: The sectors that underperformed were the ones most correlated to the rupee, in particular Financials, Energy, Industrials and Utilities. One factor causing this high correlation could be these companies’ issuance of dollar-denominated debt . When the local currency declines, it causes their debt levels to rise because it costs more rupees to pay off their debt.
o Companies that have revenue in U.S. dollars, for example the exporters, benefit from a weaker rupee; the
Technology sector is one of most prominent sectors whose companies can be said to have benefited on a
revenue basis from the weakening rupee and which also had little dollar-denominated debt.
• The actions taken by the new head of the central bank to provide discounted loans to financials represented a large change in sentiment and helped alleviate the pressures they faced from the declining rupee on their dollar-denominated debt—it may mark a turning point for these companies.
• Rebalance Results: By shifting weight toward the Financials sector and away from the Technology sector, the correlation of the India Earnings Index to the currency change has the potential to become a bit more sensitive by adding more weight to a sector that is highly correlated to the rupee and taking weight away from the Tech sector, which is less correlated to the rupee.