While ETFs such as EPI, INDY and SCIF have previously shown some positive reactions to India rate cuts, those funds may be in need of more substantive catalysts. For investors, the issue is those catalysts may not be imminent beyond the rate cut.
“A stable government would automatically lead some, if not all, of the following investment recovery drivers to transpire: A boost in domestic corporate sentiment towards carrying out more capital expenditure with the decline in political and policy risks. A boost through lower cost of capital in financial markets. More pro-growth, pro-employment, long-term policies by the government who recognises that it would be answerable for all the performances of future years,” Ben Levisohn reported for Barron’s, citing a Jefferies research note on India.
Problem is India does not hold elections until next year and “Indian equities will have little sustainable to cheer until the elections,” said Jefferies. Rate cut or not, near-term caution is warranted with India ETFs.
Market Vectors India Small-Cap ETF
ETF Trends editorial team contributed to this piece.