India’s economy experienced a spike in inflation, stoking speculation that the central bank could hike rates in the coming week and pressuring country-specific exchange traded funds, with Indian stocks seeing their largest weekly drop in a month.
The WisdomTree India Earnings ETF (NYSE: EPI) declined 5.3% over the past week. EPI regained some footing since the August low, rising 9.1% over the past three months, but the fund is still down 12.5% year-to-date.
Government data revealed that India’s consumer prices increased a higher-than-expected 11.2% in November, compared to analyst expectations of a 10% gain, reports Rajhkumar K Shaaw for Bloomberg.
Consequently, economists expect the Reserve Bank of India to raise benchmark rates to 8% from 7.75%, which would slow the economy.
“The data is creating flutter in the market, and its influence will be seen as to what the RBI governor will say next week,” Gaurang Shah, assistant vice president at Geojit BNP Paribas Financial Services Ltd., said in the article. “A 25 basis point rate increase is on the cards, but anything more will see more downside.”
The central bank has raised rates twice since September to combat the surge in inflation, bolstering confidence in India’s market, but it may not have been enough.
‘We are very uncomfortable with the current level of inflation,’’ Reserve Bank of India Governor Raghuram Rajan said in the article. “We are aware of the weak economy, but we also have to take into account inflationary pressures.”
The WisdomTree EPI ETF weights India companies by earnings in their fiscal year prior to the index measurement date.
Another broad India ETF, the iShares MSCI India ETF (NYSEArca: INDA), tracks Indian large- and mid-cap stocks. INDA is down 4.1% over the past week and 8% year-to-date.
Additionally, the PowerShares India Portfolio (NYSEArca: PIN) tracks 50 of the largest Indian companies. PIN is down 4.8% over the last week and 7.8% year-to-date.
WisdomTree India Earnings ETF
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Max Chen contributed to this article.