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.
PIN is the cheapest fund, with an expense ratio of 0.78%. EPI has an expense ratio of 0.83%. Both INP and INDY have an expense ratio of 0.89%.
It should be noted that the iPath product is an exchange traded note. ETNs are considered riskier than ETF products since the investment is subject to the credit worthiness of the issuing bank, in this case Barclays Bank.
Investors may also choose among the small-cap India ETF offerings.
Both SCIF and SCIN have an expense ratio of 0.85%.
The Market Vector India Small-Cap fund’s top sector allocations include financials, industrials and technology. The EGShares Indias Small-Cap fund leans toward consumer discretionary, industrials and financials.
In addition, investors may take a look at the EGShares India Infrastructure (NYSEArca: INXX) as a way to bet on the future build-up of India’s infrastructure. There is no doubt that the economy will expand, and the country’s poor infrastructure will eventually need updating to accommodate the growing economy. INXX has an expense ratio of 0.85%.
If you would like to take leveraged positions on daily Indian equity movements, one may consider the bull or bear options available. Again, potential investors should be aware of the potential risks involved when trading in these assets. These investments are not meant for long-term holdings. Leveraged and inverse products rebalance daily to achieve their target objective.
- Direxion Daily India Bull 3x Shares (NYSEArca: INDL)
- Direxion Daily India Bear 3x Shares (NYSEArca: INDZ)
INDL has an expense ratio of 1.13% while the INDZ fund has a 1.14% expense ratio. Direxion recently increased the leverage on the two funds to 3x, or 300% the long or short performance of the underlying holdings.