India ETFs Up, Central Bank Names Head

Cinthia Murphy
September 6, 2013

India has a new man at the helm of its central bank, and he’s someone the market seems to think affords the country a new chance of overcoming major financial challenges that have weighed on that emerging economy in recent months.

A weakening currency—the Indian rupee has slid some 20 percent year-to-date and was hovering record low levels forged as recently as last week—is one of the chief hurdles the Reserve Bank of India’s new governor Raghuram Rajan will have to face if he is to bring about reform that will put India back in a growth track.

But other challenges including massive current account and budget deficits, a pace of economic growth now at a four-year low, and rising oil and gold prices—India’s major imports—also loom large.

The former economist at the International Monetary Fund who gained notoriety for calling out the 2008 financial downturn ahead of its time, signed his oath Wednesday and brought with him a roster of proposals already on his first day on the job, according to several media reports. That strong showing for a man fueled enough optimism among investors to push the local stock market higher, and the ailing rupee rallying some 2 percent in one day . Emerging market guru Mark Mobius—head of Templeton’s Emerging Markets Group—was even quoted on CNBC as saying “the worst is over.”

“The surge represents a vote of confidence that Rajan might make some serious changes and bring down barriers that have hurt the Indian market for a while,” Dennis Hudachek, IndexUniverse ETF Analyst, said.

For ETF investors who have held onto their exposure to India, the change in leadership there could offer a reprieve from what has been a difficult year so far in terms of ETF performance.

There are over $2 billion in assets tied to about a dozen U.S.-listed India-focused ETFs, with the biggest fund in the space being the WisdomTree India Earnings ETF (EPI/ C 76).

The $741.5 million fund that invests in Indian companies picked and weighted by earnings offers a broad portfolio that has now bled nearly 28 percent of its value year-to-date, with the bulk of those losses coming in the past three months alone.

But Thursday, EPI was rallying another 2.5 percent after having tagged on gains of 5.5 percent Wednesday as Rajan took office.

The story isn’t much different for other ETFs in the segment.

The $350 million iShares India 50 ETF (INDY/ D 72)—a fund tracking a market-cap weighted index of 50 blue-chip stocks—is down more than 24 percent so far in 2013. The iShares MSCI India ETF (INDA/ C 96), a market-cap weighted ETF that comprises the top 85 percent of the Indian stock market and came to market 1 ½ year ago, has meanwhile slid nearly 23 percent since the beginning of the year. INDA has $203 million in total assets.

Both INDY and INDA have rallied some 8.7 percent and 8.2 percent respectively in the past two days.


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