Big India ETF Flirts With a Breakout

February 24th at 2:12pm by Todd Shriber

Despite elevated levels of inflation and a spate of interest rate hikes that, to this point, have proven largely ineffective in combating said inflation, exchange traded funds tracking India have not been too bad this year.

“Not too bad” being the operative words. Depending on one’s perspective, this year the WisdomTree India Earnings Fund (NYSEArca: EPI) has either been the best or least bad of the four major single-country ETFs offering exposure to the BRIC nations.  The good news is there are signs EPI, home to $819.1 million in assets under management, is flirting with a technical breakout. [India ETF Eyes a Rally]

“From a shorter-term view India ETF (EPI) is reflecting some relative strength compared to EEM year to date, which has now brought it up against a year-long resistance line above,” said Chris Kimble of Kimble Charting Solutions in comparing EPI against the iShares MSCI Emerging Markets ETF (NYSEArca: EEM).

EPI has surged 6.2% since Feb. 3, a date that appears to be marking a bottom of sorts for emerging markets, but the ETF has not yet experienced a legitimate technical breakout.

“A breakout so far has NOT happened for EPI at this time. A push above resistance would reflect positive price action for EPI and would most likely attract buyers!,” notes Kimble.

The prospect of a technical breakout for EPI and other ETFs comes against a murky fundamental backdrop. Although foreign investors have recently been net buyers of Indian equities, Bank of America Merrill Lynch says India’s high interest rates could prove stifling when it comes to foreign direct investment.

Last month, the Reserve Bank of India lifted its benchmark repo rate to 8% from 7.75%. Leading up to the announcement, economists expected no change following signs Indian inflation was ebbing in late 2013. [Rate Hikes Not Helping BIITS ETFs]

Rising prices and weak rupee have proven to be a toxic brew for the Indian economy, Asia’s third-largest. A weak currency is especially problematic for India due to nation’s high levels of poverty. Nearly two-thirds of India’s population live on less than $2 a day, the BBC reported, citing the World Bank.

Less than 10% of EPI’s weight is allocated to consumer sectors.

WisdomTree India Earnings Fund

Tom Lydon’s clients own shares of EEM.

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