A Leaders to Laggards Trip for India ETFs

Last year, exchange traded funds holding Indian equities were the darlings of the emerging markets space. This year, those leaders have turned into laggards even as Asia’s third-largest economy has expanded at its quickest pace in four years.

However, potential investors shouldn’t grow too optimistic with the higher gross domestic product figures as the latest output numbers were helped by a controversial update to India’s official GDP-estimation methodology, which could have bolstered recent readings by over two percentage points. Slack earnings and uncertainty regarding taxes on foreign investors are among the issues that have recently hindered Indian stocks. [Living Large With a Leveraged India ETF]

Year-to-date, the WisdomTree India Earnings Fund (NYSEArca: EPI) and the PowerShares India Portfolio (NYSEArca: PIN), two of the largest India ETFs, are off 6.1% and 2.7%, respectively. The iShares India 50 ETF (NasdaqGM: INDY), a proxy for India’s CNX Nifty Index, which is home to India’s 50 largest stocks, is lower by 5.1%. Inability to build on last year’s gains means EPI and PIN could go another year with closing higher in two consecutive years, something the funds have not done since 2009 and 2010.

“In the context of the broader emerging-markets asset class, India has meaningfully underperformed so far this year, down -4% compared with the MSCI Emerging Markets Index, which has gained +3% in U.S. dollar terms. The key point here is that if you are going to be short an emerging market for ‘a trade’, then it makes sense for you go after the weakest one at the moment,” said Rareview Macro founder Neil Azous in a recent note.

Azous also notes that the Nifty Index, home to companies such as Infosys (NasdaqGS: INFY) and HDFC Bank (NYSE: HDB), is technically weak and will soon make a death cross where its 50-day moving average crosses below its 200-day line.