Inflation Constrains India ETFs | ETF Trends

After years of easy money fueling growth, inflationary pressures in India are stifling economic activity, weighing on Indian equities and related exchange traded funds.

The WisdomTree India Earnings ETF (NYSE: EPI) has declined 13.2% over the past year.

India’s government should have done more to insulate the economy from the Federal Reserve’s trillion dollar stimulus measures, but it is now too late and the government does not know what course to take next, Bloomberg reports.

“On inflation I have no defense to offer — none,” Mani Shankar Aiyar, a lawmaker and senior party member, said in the article. “If there were an election today, we would do very badly.”

India’s economy saw a steep slowdown over the past year, expanding 5% in 2013, the slowest rate since 2003, compared to average growth of 8.5% from 2009 to 2011.

Industrial production in India fell by 2.1% in November year-over-year, partly due to weaker consumer spending and rising prices, according to Capital Economics analyst Miguel Chanco, reports Shuli Ren for Barron’s.

“A sharp fall in consumer goods production, of 8.7% y/y, was responsible for the overall decline,” Chanco said. “Production of capital and intermediate goods continued to expand. The weakness of consumer goods production has been centered on durable goods. Durable goods are typically more sensitive to shifts in consumer sentiment, given their high costs.”

India’s consumer price index ended 2013 at 9.9% year-over-year, down from 11.2% in November. Due to the lower inflation level in December, the central bank could leave rates unchanged for the time being. [Inflation, Rates Still Weighing on India ETFs]