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Will India ETFs Override Strong Dollar & High Oil Price?

Zacks Equity Research
Quest Diagnostics (DGX) reveals both sides of the same coin, reflecting its bleak aspects plaguing the stock as well as projecting its brighter side to denote a near-term rebound.

On account of the rising dollar prices, the Indian rupee has been trending down since the beginning of 2018. On May 7, the currency went down to its lowest in 15 months and was trading at 67.13 against the dollar.

The problems of demonetization and GST, which caused a slowdown in the Indian economy in fiscal 2017-18 are over, but the sudden rise in oil prices is indicating a potential increase in the fiscal deficit of the country, which would pull back the government in its scope of social sector spending (read: Should You Buy India ETFs on Strong GDP Forecast?).

Impact of Oil Prices

Apart from the strong performance of the dollar, another important factor is the rise in oil prices with U.S. crude crossing $70 per barrel. Analysts are expecting oil prices to reach $76 in the near future. As there is uncertainty in the market due to the gradual increase in oil price, the FPI (Foreign Portfolio Investors) has sold off $2.6 billion in the debt market in the past three weeks. As long as FPI continues selling debt, the rupee will continue to perform sluggishly.

Positive Impact for Exporters

Rajiv Kumar, the vice-chairman of NITI Ayog, an Indian government think-tank believes that this event will help the export business to increase at a rapid pace. He is also of the opinion that rupee depreciating will push energy costs higher which in turn will result in lower consumption. The IT and Pharma sectors for example have always benefited from a weakening rupee and strong performances by the dollar.  

Solid Economic Fundamentals

India’s economy is expected to grow by 7.2% in 2018 and 7.4% in 2019 as per a report by UN Economic and Social Survey of Asia and the Pacific. The report also said that once the corporate sector becomes comfortable with GST, infrastructure investments are expected to increase and the financial performance will improve. So with better growth prospects, investments in the ETFs are supposed to increase and a buoyant performance is likely. Presently at $2.5 trillion, , India’s economy is the 6th largest in the world and is expected to reach $5 trillion by 2025.  This will help the upbeat index funds to rise higher and subsequently ETFs will perform well in that scenario (read: Don't Sell in May and Go Away: Follow These ETF Strategies).

India ETFs in Focus

In the present situation of a depreciating rupee and higher oil prices, India ETFs have also felt the heat and their performances have been affected. However, let us look at some Zacks Rank #1 (Strong Buy) ETFs that have the potential to do well in the near future.

PowerShares India Portfolio PIN

It is based on the Indus India Index and designed to provide a broad viewpoint on the Indian equity market. PIN has an expense ratio of 0.79%. The fund comprises 50 stocks wherein Infosys (INFO 10.4%) and Reliance Industries (RIL 10.4%) are the top two. Average daily volume of trade is 74,000 and assets under management are $284.5 million.  

Wisdom Tree India Earnings Fund EPI

This fund observes the investment results which match up to the price and yield performance of the Wisdom Tree India Earnings Index. It has an expense ratio of 0.84%. Asset under management of the fund stands at $1.62 billion and the daily volume of shares traded is 2 million. The fund has 307 components where financials (23.4%) and technology (19.1%) have the highest sector exposure. Also Reliance Industries (RIL9.44 %), Infosys Ltd (INFO 8.46%), and Housing Development Finance Corporation Ltd (HDFC 6.48%) are the top three stocks in this fund (read: 5 ETFs to Buy in Defamed May).

iShares India 50 ETF INDY

The fund tracks the Nifty 50 Index. The fund has an expense ratio of 0.93% and consists of 52 stocks with assets of $962.6 million under its control. This is a mega-cap ETF with average daily volume of shares traded being approximately 272,000. Financials (36.45%), Information Technology (12.29%) and Energy (12.05%) are the three major sector holdings.

iShares MSCI India ETF INDA

This fund tracks MSCI India Index. It is a large-cap fund and comprises 79 stocks with an expense ratio of 0.68%. The average daily volume of shares traded is 3.6 million and total assets under management stands at $5.3 billion.

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