India stocks and country-related exchange traded funds may stand out among emerging markets funds this year as general elections in May could put a reform-minded government in place.
Fund managers are already positioning ahead of the world’s largest general election in India, anticipating that India’s opposition party leader Narendra Modi will either win a majority or be able to form a coalition government to implement economic reforms, reports Madison Marriage for Financial Times.
India is expected to “come out of the election with a government keener to make changes and boost economic activity,” Stephen Jones, chief investment officer at Kames Capital, said in the article.
Observers calculate that Modi’s BJP part would need 260 seats to implement important reforms in areas like agriculture, banking and industrials.
Kunal Desai, manager of Neptune Investment Management’s India fund, argues that the reforms would help bolster cyclical and mid-cap stocks in India as domestic investors return to the market. [Foreign Investors Return to India]
“The outgoing administration has finished with a tailwind of reforms, and there is a change of government after the election,” David Cornell, chief investment officer of Ocean Dial, said. “This election should enable India to further outperform its emerging market peer group.”
India country-specific ETFs have produced strong returns this year as the benchmark Sensex index broke new all-time highs this year. Year-to-date, the WisdomTree India Earnings Fund (NYSEArca: EPI) increased 10.2%, iShares MSCI India ETF (NYSEArca: INDA) rose 7.8% and PowerShares India Portfolio (NYSEArca: PIN) is up 6.4%. The ETFs include hefty weights to cyclical sectors like financials and materials, along with large allocations toward energy and technology names. [India ETFs Surge as BSE Hits Record]
The better outlook for the domestic economy would also bolster smaller companies. Investors can gain exposure to India’s small-cap stocks through the Market Vectors India Small-Cap Index ETF (NYSEArca: SCIF), EGShares India Small Cap ETF (NYSEArca: SCIN) or iShares MSCI India Small-Cap ETF (NYSEArca: SMIN). SCIF is up 18.2% year-to-date, SCIN gained 13.4 and SMIN rose 8.6%.
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Max Chen contributed to this article.