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India ETFs in Focus as GDP Rebounds

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India’s GDP grew 6.3% annually year over year in the July-September quarter of 2017, missing expectations of 6.4%, per a Bloomberg survey. However, it rebounded from 5.7% growth in the previous quarter, which was a three-year low, owing to headwinds related to Modi’s demonetization move in November and the introduction of a major tax reform in the form of Goods and Service Tax (GST).


The Reserve Bank of India (RBI) kept the interest rate unchanged at 6% in its October monetary policy meeting, owing to fears of rising inflation. The strong GDP growth figure is expected to provide support to the central bank to hold rates in its December Monetary Policy meeting.


In November, Moody’s Investor Service upgraded India’s sovereign rating by a notch, backing prime  minister Narendra Modi’s reforms. The rating agency raised India’s rating to Baa2 from Baa3 and changed the outlook to stable from positive, leading to a rally in the currency, stocks and bonds.


Economic Fundamentals


The agency stated that although the reforms initially caused GDP to slow down, these will be beneficial in the long run. Manufacturing activity accelerated as companies restocked their inventories after GST GST-related headwinds weighed on production. On a year-over-year basis, the manufacturing sector grew 7% in the quarter compared with 1.2% in the previous quarter.


However, on a year-over-year basis, private consumption growth slowed slightly in the quarter to 6.5% compared with 6.7% in the previous quarter, as GST GST-related discounts made consumers shop more in the first quarter. Moreover, on a year-over-year basis, farm sector growth slowed to 1.7% in the second quarter compared with 2.3% in the first.


What Lies Ahead?


Markets are scaling new highs. With strong GDP growth data, investors are more optimistic about economic reform- related headwinds taking a backseat. Moreover, in the latest World Bank rankings, India jumped 30 positions to 100th in terms of ease of doing business. This is also expected to give FDI a boost (read: Here's Why India ETFs Are Still Worth Buying).


This strong data point is a positive for the ruling party, as it prepares for a major state election this month in the prime minister’s home state Gujarat. Moreover, it has given a boost to their confidence as they the party prepares for their re-election bid in the 2019 primary elections.


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 in India.


It has AUM of $5.2 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 22.6%, 13.3% and 12.8% allocation, respectively (as of Nov 30, 2017). Housing Development Finance Co, Reliance Industries Ltd and Infosys Ltd are the top three holdings of the fund, with 8.7%, 8.3% and 6.2% allocation, respectively (as of Nov 30, 2017). The fund has returned 29.0% in a year and 28.0% year to date (as of Dec 1, 2017). INDA currently has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.


WisdomTree India Earnings Fund EPI


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


It has AUM of $1.8 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 23.3%, 19.3% and 16.5% allocation, respectively (as of Dec 1, 2017). Reliance Industries Ltd, Infosys Ltd and Housing Development Finance Co are the top three holdings of the fund, with 9.2%, 7.2% and 5.8% allocation, respectively (as of Dec 1, 2017). The fund has returned 32.4% in a year and 30.4% year to date (as of Dec 1, 2017). EPI currently has a Zacks ETF Rank #1 with a Medium risk outlook.


iShares India 50 ETF INDY


This fund provides exposure to large-cap India-basedn equities.


It has AUM of $1.2 billion and charges a fee of 93 basis points a year. Financials, Energy and Information Technology are the top three sectors of the fund, with 35.3%, 12.6% and 11.1% allocation, respectively (as of Nov 30, 2017). Reliance Industries Ltd, Housing Development Finance Co and ITC Ltd are the top three holdings of the fund, with 7.8%, 6.7% and 5.4% allocation, respectively (as of Nov 27, 2017). The fund has returned 29.7% in a year and 29.0% year to date (as of Dec 1, 2017). INDY currently has a Zacks ETF Rank #1 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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