• Less Sensitivity to the Indian Rupee: The 2013 rebalance coincided largely with Raghuram Rajan taking the helm at the Reserve Bank of India. India’s currency, the rupee, had been quite volatile, and confidence needed to be restored. Some of the hardest-hit sectors of India’s equity market leading up to the 2013 rebalance were those that correlated closely with the rupee, and WTIND’s process added weight to those undervalued areas. Between the 2013 and 2014 Index screenings, the rupee was much more stable and even appreciated almost 10%.2 Sensitivity to the rupee therefore helped performance, and the rupee-sensitive sectors rallied. At the 2014 Index screening, the sensitivity to relative value steered exposure away from some of these outperforming sectors, thereby removing some of the Index’s overall sensitivity to the rupee.
The annual rebalance process is a key element of WisdomTree’s Index methodology that can help manage valuation risks. After seeing the progress that India has made on the policy front, the market response has been strong. As we move forward, attentiveness to valuation has the potential to become more important as stocks begin to trade less on expectations of reforms and more on bottom-line results.
1Sources for entire bullet: Bloomberg, Standard & Poor’s.
2Source: Bloomberg; refers to the rupee vs. U.S. dollar exchange rate from 8/31/13 to 8/31/14.
Important Risks Related to this Article
Investments in emerging, offshore or frontier markets are generally less liquid and less efficient than investments in developed markets and are subject to additional risks, such as risks of adverse governmental regulation and intervention or political developments. Investments focused in India are increasing the impact of events and developments associated with the region, which can adversely affect performance.