India country-specific exchange traded funds were among the worst areas of the global markets Monday as state elections and central bank chief’s abrupt resignation fueled uncertainty.
On Monday, the iShares MSCI India Small-Cap ETF (NYSEArca: SMIN) dropped 4.8%, VanEck Vectors India Small-Cap Index ETF (NYSEArca: SCIF) declined 4.5% and iShares MSCI India ETF (CBOE: INDA), the largest India country-specific ETF, fell 4.2%, all breaking below their short-term support at the 50-day simple moving average.
Dragging on India’s equity market, exit polls last week from state elections were the latest to send the benchmark S&P BSE Sensex Index down Monday, revealing Prime Minister Narendra Mod’s party will face a tight electoral contest in key states ahead of next year’s general election, Bloomberg reports.
The latest round of political risks has fueled uncertainty in India’s benchmark, with volatility at levels not seen since May 2016.
Further exacerbating the sell-off, India’s central bank governor Urjit Patel resigned Monday, citing personal reasons, which investors interpreted as a sign of divisions between the Reserve Bank of India and Modi’s government worsening.
“We will see a kneejerk selloff,” Lakshmi Iyer, head of fixed income at Kotak Mahindra Asset Management Co, told Bloomberg. “And if the declines come with a bad poll outcome for the BJP, we may see a big drop.”
The unexpected turn caused rupee non-deliverable forwards to experience their steepest decline in four years – the rupee is among the worst performers in Asia this year due to the weakening economy and problems in the financial sector. Without Patel, traders saw another layer of risk to monetary policy as the economy faces both foreign and domestic hurdles.
“Short-term political gain but with potentially incalculable long-term damage to the commitment to credible economic policy,” Vivek Dehejia, an associate professor of economics at Carleton University in Ottawa, described on Twitter the consequence of Patel’s exit. It “is a very tragic day for India and for sound economics.”
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