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India ETFs in Focus as Inflation Rises

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Consumer prices in India increased to a 15-month high in November, owing to a surge in food and oil prices. On a year-over-year basis, retail inflation increased to 4.88% in November compared with 3.58% in October, breaching India’s central bank’s 4% target. Moreover, a Bloomberg survey of economists expected inflation to register a 4.29% increase.


Per a Bloomberg article, vegetable prices increased 22.5% in November, leading to a surge in inflation. Moreover, crude oil prices have been on an upward trend. Brent crude recently passed the $65 mark for the first time since 2015.


Economic Scenario


India’s GDP grew 6.3% annually in the July-September quarter of 2017, missing expectations of 6.4%, per a Bloomberg survey. However, it bounced back from a three-year low of 5.7% growth in the previous quarter (read: India ETFs in Focus as GDP Rebounds).


The Reserve Bank of India (RBI) kept the interest rate unchanged at 6% in its December monetary policy meeting, owing to fears of rising inflation. However, analysts are expecting the RBI to maintain a neutral stance for the rest of this fiscal. “The scope for any rate cut this fiscal (year) is completely ruled out,” said Sunil Sinha to Reuters, an economist at India Ratings. “I do not see much of change in RBI’s stance in the next six months,” he said.


In November, Moody’s Investor Service upgraded India’s sovereign rating by a notch, backing prime minister Narendra Modi’s reforms. However, Fitch ratings reduced India’s GDP growth forecast to 6.7% from 6.9% for the current fiscal and to 7.3% from 7.4% for fiscal 2018-19, citing weaker rebound in growth as the reason for the downgrade.


Moreover, on a year-over-year basis, private consumption growth slowed slightly in the July-September quarter to 6.5% compared with 6.7% in the previous quarter, as GST related discounts made consumers shop more in the first quarter. Industrial production growth decreased to 2.2% in October compared with 4.14% in September.


What Lies Ahead?


The strong GDP figure 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 ruling party’s confidence as it prepare for their re-election bid in the 2019 primary elections.


However, the recent surge in prices makes the economic environment quite uncertain. Moreover, stability in oil prices in the wake of the OPEC deal might be a negative for India.


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 $5.3 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 22.4%, 13.2% and 12.7% allocation, respectively (as of Dec 11, 2017). Housing Development Finance Co, Reliance Industries Ltd and Infosys Ltd are the top three holdings of the fund, with 8.7%, 8.0% and 6.2% allocation, respectively (as of Dec 11, 2017). The fund has returned 27.2% in a year and 30.5% year to date (as of Dec 12, 2017). INDA 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 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 23.1%, 19.2% and 16.8% allocation, respectively (as of Dec 12, 2017). Reliance Industries Ltd, Infosys Ltd and Housing Development Finance Co are the top three holdings of the fund, with 9.1%, 7.4% and 5.9% allocation, respectively (as of Dec 12, 2017). The fund has returned 29.5% in a year and 32.3% year to date (as of Dec 12, 2017). EPI has a Zacks ETF Rank #1 with a Medium risk outlook.


iShares India 50 ETF INDY


This fund provides exposure to large-cap Indian equities.


It has AUM of $1.2 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 26.7%, 10.5% and 10.5% allocation, respectively (as of Dec 11, 2017). Reliance Industries Ltd, Housing Development Finance Co and ITC Ltd are the top three holdings of the fund, with 7.6%, 6.8% and 5.7% allocation, respectively (as of Dec 11, 2017). The fund has returned 27.7% in a year and 31.1% year to date (as of Dec 12, 2017). INDY 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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