Why India ETFs Are In a Rut | ETF Trends

After a stellar year, India exchange traded funds (ETFs) are lagging the broader market as economic problems weigh on the country. Though this might just be a short-term phase that will run its course, you’ve got options.

The recent weakness in India’s economic growth may just be temporary since the potential for monumental growth is still there, says Ron Rowland for Money and Markets. But right now, it’s got problems:

  • The biggest threat to India ETFs is inflation. It is especially evident when taking a look at the rise in India’s food costs since a large proportion of income for the pool of low-income workers is mostly spent on food.
  • Analysts cite that the macro-economic conditions and negative political sentiments do not favor the Indian equity market. High inflation, increased crude prices and a series of corruption scams are the main reasons behind the negative outlook for India.
  • A lack of infrastructure and a large population in dire poverty has been and remains a sticking point. It’s said that infrastructure problems cost India quite a bit in GDP growth.

That’s not to say India isn’t trying to deal with its issues. India’s Central Bank has taken steps to increase interest rates to bring down inflation, but stocks, more notably India’s bank stocks, are also declining, as well.

According to The Economic Times, a recent survey of fund managers conducted by Bank of America Merrill Lynch reveals that rising risk in emerging markets and the recovery back at home is bringing investors back to developed markets from emerging economies, with India as the least preferred investment destination in the Asia region. Ouch. [U.S. ETFs Leave Emerging Markets in the Dust.]

Rowland notes that this is only the effects of a natural economic cycle and India’s economy will be back on its feet. [India ETFs and the Emerging Market Rebound.]

  • iPath MSCI India ETN (NYSEArca: INP). INP is an exchange traded note (ETN) not an ETF. Share creation has been suspended for some time now, so watch the net asset value when trading. Here’s the difference between ETFs and ETNs.
  • WisdomTree India Earnings (NYSEArca: EPI). EPI is a  fundamentally weighted large-cap ETF; its largest allocation is to the financial sector, which accounts for 22% of the ETF.
  • PowerShares India (NYSEArca: PIN). PIN is another large-cap India ETF. If you’re concerned about Indian banks, this fund may be a good option; it has a less than 10% allocation to the financial sector. One-quarter of it is exposed to the energy sector.
  • iShares S&P India Nifty 50 (NYSEArca: INDY). INDY is newer and less actively traded than EPI or PIN. Financials and technology are the top sectors, with a 25% and 17.6% allocation, respectively. the 12.7% allocation to consumer staples can be a good way to play India’s powerful consumer base.
  • EGS Indxx India Infrastructure (NYSEArca: INXX). INXX focuses on physical infrastructure spending. With all of India’s infrastructure woes, there’s a great opportunity and room for growth here.
  • Direxion Daily India Bear 2x (NYSEArca: INDZ). INDZ is for those who believe that India’s markets will drop further, but do be sure you understand how leveraged and inverse ETFs work before diving in.

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.