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4 Reasons to be Bullish on Indian ETFs

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Although the prime minister of India, Narendra Modi, has invited widespread criticism for his policies that have hit short-term growth, the fundamentals of the economy remain strong.


Modi’s Bold Moves


India’s GDP grew 5.7% annually in the April-June quarter of 2017, a three-year low. Multiple factors drove this reading. Modi in a bold move, removed 86% of the currency in circulation in November with the aim of curbing corruption and black money. However, recent figures released by the Reserve Bank of India (RBI) indicate that 99% of the banned currency found its way back into the system (read: India's GDP Growth at 3-Year Low: ETFs in Focus).


Moreover, in a move aimed at unifying the country’s tax code, the Indian government introduced a major tax reform earlier this year in the form of Goods and Service Tax (GST). GST has weighed on manufacturing activity, as manufacturers were running down inventories on the eve of GST. Analysts expect GST to create short-term pains on growth but be beneficial in the long run.


Why be Bullish on India-Focused Funds now?


India’s demographics are strong as around 65% are below the age of 35. This compares favorably with other nations like Japan, which are facing difficulties owing to a slowing working population. India’s youth is expected to comprise a major percentage of the global workforce in the coming years.


Although consumer spending declined in the second quarter of 2017 to 16.8 billion INR from 18.5 billion INR in the first quarter, it is expected to increase to 19.1 billion INR in the next quarter, per a trading economics forecast.

Moreover, the beginning of the festive season in India is expected to spur spending and might lead to an increase in growth in the coming months.

Another important factor that needs to be considered is the vast amount of foreign exchange reserves the Indian economy possesses. It increased to $400.73 billion in the week ending September 8 from $398.12 billion in the previous week (read: India FDI up 37% in Fiscal Q1: ETFs in Focus).


Risks Involved


Per Raghuram Rajan, former RBI Governor, the Indian economy faces huge risks if the number of job additions does not match the number of new entrants to the labor force.


Moreover, the Indian economy faces risks from rising oil prices. Adding to the agony, per a Financial Times article, the average valuation for Indian companies is quite high for an emerging market at 18 times earnings. However, analysts expect this measure to come down as the impacts of demonetization and GST fade away.


Let us now discuss a few ETFs focused on providing exposure to the emerging market nation (see all Asia-Pacific (Emerging) ETFs here).


iShares MSCI India ETF INDA    


This fund provides exposure to large and mid-sized Indian equities.


It has AUM of $5.30 billion and charges a fee of 71 basis points a year. Financials, Computer-Software and Consumer Discretionary are the top three sectors of the fund, with 23.5%, 12.9% and 12.3% allocation, respectively (as of Sep 18, 2017). Housing Development Finance Co, Reliance Industries Ltd and Infosys Ltd are the top three holdings of the fund, with 9.3%, 7.7% and 5.8% allocation, respectively (as of Sep 18, 2017). The fund has returned 17.6% in a year and 28.4% year to date (as of Sep 19, 2017). INDA currently has a Zacks ETF Rank 2 (Buy) with a Medium risk outlook.


WisdomTree India Earnings Fund EPI


This fund provides exposure to Indian equities in multiple capitalization segments.


It has AUM of $1.81 billion and charges a fee of 84 basis points a year. Financials, Energy and Information Technology are the top three sectors of the fund, with 24.3%, 18.9% and 15.8% allocation, respectively (as of Sep 19, 2017). Infosys Ltd, Reliance Industries Ltd and Housing Development Finance Co are the top three holdings of the fund, with 6.9%, 6.2% and 6.2% allocation, respectively (as of Sep 19, 2017). The fund has returned 23.4% in a year and 31.4% year to date (as of Sep 19, 2017). EPI currently has a Zacks ETF Rank 2 with a Medium risk outlook.


iShares India 50 ETF INDY


This fund provides exposure to large-cap Indian equities.


It has AUM of $1.17 billion and charges a fee of 93 basis points a year. Banks, Computer-Software and Refineries/Marketing are the top three sectors of the fund, with 27.1%, 10.4% and 9.4% allocation, respectively (as of Sep 18, 2017). Housing Development Finance Co, Reliance Industries Ltd and ITC Ltd are the top three holdings of the fund, with 7.4%, 7.3% and 5.9% allocation, respectively (as of Sep 18, 2017). The fund has returned 19.0% in a year and 30.5% year to date (as of Sep 19, 2017). INDY currently has a Zacks ETF Rank 2 with a Medium risk outlook.


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ISHARS-SP INDIA (INDY): ETF Research Reports
 
ISHARS-M INDIA (INDA): ETF Research Reports
 
WISDMTR-IN EARN (EPI): ETF Research Reports
 
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