Emerging markets have been underperforming this year, and India exchange traded funds are bringing up the rear as structural problems plague the economy and “tapering” concerns push away U.S. investors.
The WisdomTree India Earnings Fund (NYSEArca: EPI) declined 26.8% year-to-date. Small-caps were especially sensitive to the exodus out of India, with Market Vectors India Small-Cap Index ETF (NYSEArca: SCIF) falling 45.6% year-to-date.
Additionally, the Indian rupee has weakened, depreciating as much as 4% in one day and exacerbating the drop in India-related ETFs – India ETFs track rupee-denominated equities, so a weaker rupee translates to an even lower return when converted over to the U.S.d dollar. The WisdomTree Indian Rupee Fund (NYSEArca: ICN) is down 11.1% year-to-date. [India ETFs Fall 4% as Rupee Hits Fresh Low]
India’s central bank recently announced a series of measures to limit capital flight as a way to protect the domestic currency, writes Neena Mishra for Zacks. However, the added measures have only dissuaded foreign investors from diving into the Indian markets on fears that more capital controls could be implemented in the future.
Fed tapering concerns have also pushed investors away from emerging market investments as many start thinking about an end to years of easy money.
The Indian economy expanded 5% during the 2012 to 2013 fiscal year, its lowest growth in a decade, compared to the 8% average rate between 2006 to 2011. The International Monetary Fund now expects the economy to grow 5.7% this year. Additionally, the economy is fighting against a 10% consumer inflation level.