India exchange traded funds of all shapes and sizes surged Monday as exit polls from the world’s largest democracy pointed to a landslide victory for Hindu nationalist Narendra Modi.
While Modi’s victory had arguably been previously priced in given the bullish year-to-date performances by India ETFs such as the WisdomTree India Earnings Fund (EPI) and the iShares MSCI India ETF (INDA) , those ETFs still surged Monday. For example, EPI gained almost 4% on volume that was better than double the daily average, cementing its status as the best performer among the four major BRIC single-country ETFs. [Election Help for India ETFs]
Another India ETF that rallied Monday was the EGShares India Infrastructure Index Fund (INNX) , which gained almost 5% on volume that was nearly 10.5 times the daily average. There are visible signs that investors are betting a Modi victory combined with his UPA coalition’s ability to control a majority in India’s parliament will lead to increased infrastructure spending in a country that sorely needs it.
Over the past five days, INXX surged 7.6%. Among Indian alternative investment funds, those focused on infrastructure were among the top asset gatherers in the first quarter, reports Forbes.
A Jefferies analyst told Gulf News that India’s plans for so-called smart cities, if those plans come to fruition, could boost infrastructure spending 35% to 70% over the next thirty years with infrastructure, industrial, mining and cement equities among the beneficiaries.
INXX allocates a combined 56.5% of its weight to Indian industrial and basic materials stocks. A Modi victory has already proven to be a catalyst for INXX, but the real test for the ETF will come in the new leader’s ability to enact legitimate reform by convincing local governments to permit new infrastructure projects.
India needs it. Estimated 2014 GDP growth of 4.9% is, in the eyes of some analysts, too small for a country of 1 billion people. [A Look at Global Infrastructure ETFs]
Investors have been teased by the promise of major events boosting emerging markets infrastructure spending in the past. For example, the EGShares Brazil Infrastructure Index Fund (BRXX) has disappointed, although it has been for several years Latin America’s largest economy would play host to the World Cup this year an the Summer Olympics in 2016. BRXX is up just 2.5% this year while the iShares MSCI Brazil Capped ETF (EWZ) is 14%.
Even with a year-to-date gain of almost 21%, INXX has lagged other India ETFs. EPI is up 22.7% this year while the EGShares India Small Cap Fund (SCIN) and the Market Vectors India Small-Cap Index ETF (SCIF) are up an average of 26.5%. [Global Small-Cap ETFs Shine While U.S. Funds Falter]
EGShares India Infrastructure Index Fund