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]
“Taking both growth and inflation dynamics into account, we feel the RBI’s bias is not to hike rates further at the moment,” Barclays analysts Rahul Bajoria and Siddhartha Sanyal said.
For broad India exposure, investors can take a look at EPI, which weights India companies by earnings in their fiscal year prior to the index measurement date; the iShares MSCI India ETF (NYSEArca: INDA), which tracks Indian large- and mid-cap stocks; the PowerShares India Portfolio (NYSEArca: PIN), which tracks 50 of the largest Indian companies.
The industrial sector makes up 9.3% of EPI and consumer discretionary stocks account for 5.7% of the fund. INDA has 4.2% in industrials and 6.4% in consumer discretionary. PIN includes 1.9% in industrials and 4.6% in consumer discretionary. EPI and INDA both have significant exposure to the financial sector at around 24%, whereas PIN’s largest sector allocation is in information technology at 24.4%.
WisdomTree India Earnings ETF
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