Potential Rate Hikes Dampen India Stock ETFs

ETF Trends

Spooked by prospects of another round of rate hikes, investors are dumping India exchange traded funds, with Indian stocks recording their first weekly loss in five weeks.

The iPath MSCI India ETN (INP) dropped 3.0% Friday, while the PowerShares India Portfolio (PIN) and WisdomTree India Earnings ETF (EPI) both declined 3.7%.

India stock indices plunged to a three-week low Friday after speculation that Reserve Bank of India’s Governor Raghuram Rajan would raise interest rates to further combat inflationary pressures, Indian Express reports. [India ETFs Dive on Rate Surprise]

Raghuram Raja upped the repo rate last week to help depress inflation.

“Markets were negatively surprised last week by the 25 bps repo rate hike by the RBI,” Dipen Shah, head of the Private Client Group Research at Kotak Securities, said in the article. “Consequently, most of the banking and other interest rate sensitive stocks under-performed for the week.”

Foreign interest in Indian stocks has also been down due to the weak Indian rupee currency. The WisdomTree Indian Rupee Fund (ICN) was down 1.8% Friday.

The precipitous drop in the rupee has prompted comparisons to the balance of payments crisis India experienced in 1991, reports Shikhar Balwani for Bloomberg.

“In the near term, we are more cautious on India,” Roland Mieth, senior vice president of emerging markets at PIMCO Asia Pte Ltd., said in the Bloomberg article. “Although an outright credit default remains unlikely, the chance of a sovereign downgrade by one of the major credit agencies is large in the next 12-18 months.”

WisdomTree India Earnings ETF

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Max Chen contributed to this article.

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.

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