India ETFs Look for Growth in 2014

December 30th at 2:30pm by Tom Lydon

India exchange traded funds have weakened this year on soaring inflation and quickly depreciating rupee currency, but favorable monsoon rains, greater rural demand and an uptick in exports could support Indian equities in 2014.

Some observers are anticipating higher economic growth in India as investor confidence in Indian equities rises on a jump in exports, elections next year, a halt to interest rate hikes and now expectations that monsoon rains will help support the rural base, reports Rajhkumar K Shaaw for Bloomberg.

“The optimism comes from the fact that GDP estimates are being upgraded because exports are picking up and good monsoon rains will translate into better rural demand,” Rakesh Arora, the head of research at Macquarie Group Ltd., said in the article. “Three months ago, everyone was cutting GDP to below 4 percent.”

Agriculture Minister Sharad Pawar projects food-grain output in the 2013-14 season could hit a record high as India experiences 37 inches of rain in the annual wet season, the most in six years.

Consequently, the increased harvest, along with a $77 billion government subsidy, would help India’s 600,000 villages to spend on goods.

Moreover, the government is expected to “fast-track” 255 infrastructure projects worth $162 billion.

“A good monsoon, higher exports and the government clearing some big infrastructure projects will push growth up,” Gaurav Mehta, a strategist at Ambit Capital Pvt., said in the article. “There’s still a big portion of the economy that is healthy.”

For broad India exposure, investors can take a look at the WisdomTree India Earnings ETF (NYSE: EPI), which weights India companies by earnings in their fiscal year prior to the index measurement date; the iShares MSCI India ETF (NYSEArca: INDA), which tracks Indian large- and mid-cap stocks; the PowerShares India Portfolio (NYSEArca: PIN), which tracks 50 of the largest Indian companies.

The better outlook for domestic demand would also bolster smaller companies. Investors can gain exposure to India’s small-cap stocks through the Market Vectors India Small-Cap Index ETF (NYSEArca: SCIF), EGShares India Small Cap ETF (NYSEArca: SCIN) or iShares MSCI India Small-Cap ETF (NYSEArca: SMIN).

Additionally, for more targeted exposure, the EGShares India Consumer ETF (NYSEArca: INCO) could benefit from the increase consumer spending and the EGShares India Infrastructure ETF (NYSEArca: INXX) could benefit from increased infrastructure spending.

For more information on India, visit our India category.

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.