India’s exchange traded note (ETN) and closed-end fund (CEF) have been down recently as India has been making moves to limit overseas money into its stock market. As more money from abroad flows into India and other emerging-market countries, such as China and Thailand, policy makers are worried that so much money so fast could create bubbles. Earlier this week, authorities in India proposed restricting a popular method used by foreigners to invest in local shares. Stocks dropped sharply Wednesday in response, with the benchmark Sensex index falling nearly 10% before recovering to close 1.8% lower, reports Jackie Range and Joanna Slater for The Wall Street Journal. Currently, iPath MSCI India Index ETN (INP) is up 47.6% year-to-date, and the India Fund (IFN) is up 20.8% year-to-date. Besides IFN and INP, the Claymore/BNY BRIC (EEB) has 11.8% invested in India and is up 68.9% year-to-date.
India’s inflation rate dropped to a five-year low of 3.1%, the government said Friday, which raised hopes that the central bank might not raise key interest rates later this month. Friday’s figures mark a big improvement compared with February, when the inflation rate climbed to a two-year high of 6.7%, creating fears that the economy might be overheating, the Associated Press reports.
Although Friday’s figures offered great news for India’s economy, the country needs better corporate governance to attract foreign investors, especially those from the U.S. Yet a new study shows that India’s corporate sector is vulnerable to corporate governance problems such as unclear leadership succession and a lack of genuinely independent directors because of the dominance of family-owned companies, reports Joe Leahy for the Financial Times. The ETN and CEF were created precisely because it’s been difficult for foreign investors to get India exposure. If India is having further problems with foreign investment, how will this impact creating an India-based ETF for U.S. investors?
For full disclosure, some of Tom Lydon’s clients own EEB.
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