Indian equities and related exchange traded funds took a beating last year as inflationary pressures added to the slowdown in the economy’s growth. However, recent economic data revealed improvements, especially in industrial output, which has helped lift India stock ETFs above other equities at the start of the year.
India has boasted an annualized average growth of 9% due to the liberalization of its economy, expanding domestic consumer base and increased investments. Since the 1990s, the country has experienced high levels of growth as it implemented industrial deregulation, privatization of state-owned companies and reduced controls on foreign investments and trade. Unlike most emerging markets, exports are a small part of the economy, accounting for 15% of GDP, while domestic consumption plays a large role in the country’s economy, which makes Indian equities much less correlated to global markets.
Over the longer-term, India’s large, young population and educated middle- and upper-class will continue to maintain growth. However, poor infrastructure, a large bureaucracy, high poverty and low literacy will pressure growth over the medium-term.
For the short-term, investors should note that the government has implemented back-to-back interest rate hikes over 2011 to combat its rising inflation levels, which slowed to 7.5% in December. India’s central bank is expected to focus on maintaining core inflation when dictating its monetary policy.
More recently, India revealed that its industrial output was much better than previously expected, topping most analyst projections. Prime Minister Manmohan Singh projected that the country’s economy will likely expand 7% in the fiscal year ending March 31. Some private economists and analysts believe that the economy may slow further, but India’s officials are confident that a rebound will occur in the first quarter of 2012 on slowing inflation, lower interest rates and an improved global outlook.
India exchange traded products:
- WisdomTree India Earnings Fund (NYSEArca: EPI)
- iPath MSCI India IndexSM ETN (NYSEArca: INP)
- Powershares India Portfolio (NYSEArca: PIN)
- iShares S&P India Nifty 50 Index Fund (NYSEArca: INDY)
The WisdomTree India Earnings Fund is the largest, followed by the iPath MSCI India Index ETN, PowerShares India Portfolio and iShares S&P India Nifty 50 Index fund. All four of the funds have high concentrations in financials, energy and information technology sectors.