After being shunned in the risk-off, volatile market environment over 2011, India exchange traded funds are making up the difference on a combination of improved market conditions and an appreciating rupee.

The largest India ETF, WisdomTree India Earnings Fund ETF (NYSEArca: EPI), is up 31.9% year-to-date. EPI allocates 24% of holdings to its financial sector. Zacks research firm believes that since a large portion of the population is not using banks, the banking sector still has an opportunity to expand. [ETF Chart of the Day: India]

India’s stock market has returned 13.9% year-to-date in the local currency, but for international investors, the returns have exceeded 25% in 2012 – the Indian rupee has appreciated almost 8% in January against the U.S. dollar, according to Zacks Investment Research on NASDAQ. Most country-specific ETFs do not hedge currency risks, so currency appreciations provide an extra kick while currency depreciation will drag on the funds.

With the U.S. economy expanding at a meager pace and the Eurozone problems tentatively contained, global investors are returning to areas that saw valuations drop from last year’s exodus. [BRICs Lead Emerging Market ETFs]