Some of the worst performing country-specific ETFs of this year cover India’s market.
For example, the VanEck Vectors India Small-Cap Index ETF (NYSEArca: SCIF) plunged 16.4%, EGShares India Small Cap ETF (NYSEArca: SCIN) declined 16.4%, EGShares India Infrastructure Index Fund (NYSEArca: INXX) decreased 12.8% and iShares MSCI India Small-Cap ETF (NYSEArca: SMIN) dropped 10.8% year-to-date.
Meanwhile, the iShares MSCI India ETF (CBOE: INDA), the largest India country-specific ETF, fell 6.5% so far this year, its worst performance to a new year since its inception back in 2012.
A number of factors are dragging on India’s economy and equities market. For starters, a newly introduced tax bill on long-term capital gains dissuaded many middle-income Indians from maintaining momentum in the equities market, Bloomberg reports.
Related: New Tax Pulls Rug From Under India ETFs
Starting in April, investors redeeming shares after holding their investments for more than a year will have to pay a 10% levy on all capital gains exceeding Rs100,000, or $1,560. Selling long-term stock investments have been tax free since 2004.
Some observers feared India’s long bull run that has pushed up valuations toward a potential bubble territory could experience a sharp correction if any problems unbalanced the status quo, and finance minister Arun Jaitley did just that when he delivered his fourth annual budget and announced the end of a tax exemption on equity investments from long-term capital gains taxes.
The country could also experience further political risk, especially ahead of elections early next year. Srivathsan Ramachandran, director of institutional equities sales at Spark Capital Advisors, warned that there may be little chance of a turnaround this year.
Furthermore, there has been speculation that a $2 billion bank fraud could sperad and turn into a contagion across India’s financial markets.
Meanwhile, lower earnings growth compared to other developing markets has also dragged on foreign investment demand for this emerging Asian market.
For more information on India’s markets, visit our India category.