Among the best performing areas of the emerging markets, India country-specific exchange traded funds have made a drastic surge since the start of the new year.
Specifically, the India ETFs that focus on small capitalization stocks have been among the best performers in the emerging markets category year-to-date, with the Columbia India Small Cap ETF (NYSEArca: SCIN) up 15.8%, VanEck Vectors India Small-Cap Index ETF (NYSEArca: SCIF) 15.3% higher and iShares MSCI India Small-Cap ETF (BATS: SMIN) up 14.6%.
New Delhi projects India’s economy could expand between 6.75% and 7.5% in 2017-18 as the government shifts tactics on its economy.
India’s market suffered a blow at the end of 2016 after Prime Minister Narendra Modi yanked about 86% of all cash from the economy to fight so-called black money to fight back against the huge shadow economy.
While the economy may experience a short-term setback from the move, the results of demonetization could usher in long-term benefits to the economy.
Moreover, the Indian economy is set to implement other structural reforms, including a proposed Goods and Service Tax that could bolster growth by another 10%.
Prime Minister Modi has also hinted at encouraging SMEs, or small and medium enterprises, with tax relaxation and new incentives offered toward small business owners. The government has brought a renewed focus on SMEs to capture a larger market space.
The economy as a whole is also on a more stable ground and is stronger than most of its developing market peers. India is enjoying one of the world’s fastest growth rates, improved fiscal discipline, a stable rupee currency, moderate current account deficit and slowing inflationary pressures.
With the country’s renewed focus on its domestic economy and growth among smaller business, India small-cap ETFs have been leading the charge in the recent rebound.
SCIN tries to reflect the performance of the Indxx India Small Cap Index, which is comprised of a maximum 75 companies in the small-cap segment in India. The Columbia offering focuses on banks 13.9%, followed by construction & engineering 11.9% and pharmaceuticals 7.0%.
SCIF tracks the MVIS India Small-Cap Index of small-cap companies in India. The fund has a broader 158 components and is more sector heavy on industrials 21.5%, followed by consumer discretionary 19.7% and financials 17.0%.
SMIN follws the MSCI India Small-Cap Index and is the most diversified with 256 components, with a heavy sector weight toward consumer discretionary 22.6%, followed by financials 19.4% and industrials 16.9%.
While each of the three are “small-cap” ETFs, the iShares offering includes a 11.5% tilt toward large-cap names and a big 61.5% position in mid-caps. The Columbia ETF does not have large-cap exposure, but it does include a large 59.8% weight toward mid-caps. SCIF may be the closest to a small-cap focus, with 71.7% small-caps and 6.9% micro-caps exposure.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.