Buoyed by hopes a new government will take power following elections later this year, India exchange traded funds have dominated their BRIC rivals in 2014. A firming rupee has also helped send the benchmark Sensex to a series of record highs after sapping Indian equities last year.
“The Indian economy has begun to display tentative signs of improved momentum. A key leading indicator – Markit India composite purchasing managers’ index – has ascended ever so gradually into recovery territory (50.3) after reaching a low of 46.1 last September. Industrial output, too, is signaling a cautious revival in manufacturing activity, having risen 0.1 percent in January – a respectable 1.4 point turnaround from its low point (-1.3 percent) in November 2013,” according to a new research note by S&P Capital IQ.
The WisdomTree Indian Rupee Strategy Fund (NYSEArca: ICN) has surged 6.3% this year. The strengthening equity markets and rupee have played pivotal roles in bolstering key Indian economic data points. [Rupee ETF Becomes a Leader]
“The mood among domestic households has been perking up, evinced by the country’s steadily rising index of consumer confidence. In light of the forgoing, the economy should regain a measure of strength, with real GDP expected to accelerate to 5.1 percent this year and nearly six percent in 2015, notwithstanding the tight credit posture of the Indian central bank, which has slowed the pace of inflation in spite of continued supply shortages limiting the downside to price pressure,” said S&P Capital IQ.
The research firm has a marketweight rating on the WisdomTree India Earnings Fund (NYSEArca: EPI), the largest India ETF by assets. Heading into Thursday’s trading session, EPI was sitting on a year-to-date gain of 16.1%, by far the best performance among the four major single-country ETFs tracking BRIC nations. The only other of those four that is higher this year is the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ), which has benefited from a recent rally whereas EPI and rival India ETFs have been strong all year. [India ETFs: Jewels Among BRIC Funds]
EPI has also more than quadrupled the year-to-date returns offered by the iShares MSCI Emerging Markets ETF (NYSEArca: EEM).
“Pending the May polling results, risk-eager investors – who have not already re-entered the market – might be advised to consider doing so in the event BJP wins the election by a landslide. De-regulation of key protected sectors, like retail, and the advancement of free market policies beyond what Singh initiated during his tenure would give investors a solid reason to diversify their exposures even further in Indian stocks,” said S&P Capital IQ. [Stars Align for Big India ETF]
Investors opting for a more tactical approach can consider the EGShares India Infrastructure ETF (NYSEArca: INXX), which S&P Capital IQ also rates marketweight. INXX does not attract the same level of fanfare of other India ETFs, but even with Thursday’s 2.7% loss, the ETF is up nearly 20% in just the past month.
INXX “has just 32 positions, concentrated in Industrials and Utilities sectors. The ETF ranks favorably for the S&P Capital IQ Fair Value attributes of its holdings,” according to S&P Capital IQ.
Although INXX has been in rally mode, the ETF could still offer more upside as it is trading more than 8% below its 52-week high. The ETF resides almost 33% below where it traded exactly two years ago today.
EGShares India Infrastructure ETF
Tom Lydon’s clients own shares of EEM.