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What Lies Ahead for India ETFs?

Shubham Jaipuria
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India’s factory activity increased at its fastest pace in five-years in December, driven by an expansion in output and new orders. This is indicative of an extended recovery in India’s economic growth, following the positive GDP growth in the September quarter (read: India ETFs in Focus as Retail Inflation Touches 17-Year High).      

Into the PMI Headlines

The Nikkei India Manufacturing Purchasing Managers’ Index (PMI) increased to 54.7 in December compared with 52.6 in November. A reading above 50 indicates expansion.

“Strong business performance was underpinned by the fastest expansions in output and new orders since December 2012 and October 2016 respectively. Anecdotal evidence pointed to stronger market demand from home and international markets,” said Aashna Dodhia, economist at IHS Markit, who compiled the survey.

Economic Scenario and Market Movers

Coming to the economic data points, India’s GDP grew 6.3% year over year in the July-September quarter of 2017 compared with a three-year low of 5.7% in the previous quarter. However, Morgan Stanley is very optimistic about the Indian economy going forward, as it published a new research report stating that the Indian economy is expected to grow an average 7.3% between 2020 and 2022.

Moreover, the positive trend in manufacturing points to a sustained recovery following a slowdown due to Narendra Modi’s economic reforms. On Jan 23’s trading session, the markets scaled record highs, with Sensex closing above 36,000 and Nifty closing above 11,000 for the first time.

Among the major market movers were the end of the temporary shutdown in the U.S. government. As a result, foreign buying of Indian equities and strong liquidity drove markets to peaks. Per a Times of India article, foreign investors bought shares worth net INR 15,675.1 million ($246.24 million) on Jan 23 (read: Is Government Shutdown a Bull Market Threat? ETFs in Focus).

Given that the union budget is scheduled on Feb 1, investors are widening their bets on positive expectations. Modi’s state election victories in 2017 were mostly driven by urban voter population.  Hence, investors are betting on the last budget of Modi, of his current term, to be populist, in order to sway rural votes ahead of the 2019 general elections.  Given that around 58% of India’s rural population depends on agriculture for their livelihood and that the sector contributes around 17% to India’s GDP, it is expected to majorly impact the Indian economy.

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 $5.9 billion and charges a fee of 68 basis points a year. Financials, Computer-Software and Consumer Discretionary are the top three sectors of the fund, with 23.2%, 13.8% and 12.4% allocation, respectively (as of Jan 22, 2018). Housing Development Finance Co, Reliance Industries Ltd and Infosys Ltd are the top three holdings of the fund, with 9.0%, 8.0% and 6.4% allocation, respectively (as of Jan 22, 2018). The fund has returned 39.2% in a year. 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 $1.9 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 23.4%, 18.7% and 17.9% allocation, respectively (as of Jan 23, 2018). Reliance Industries Ltd, Infosys Ltd and Housing Development Finance Co are the top three holdings of the fund, with 9.1%, 7.9% and 6.0% allocation, respectively (as of Jan 23, 2018). The fund has returned 41.9% in a year. 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 $1.3 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 26.8%, 11.2% and 10.4% allocation, respectively (as of Jan 22, 2018). Reliance Industries Ltd, Housing Development Finance Co and ITC Ltd are the top three holdings of the fund, with 7.9%, 7.1% and 5.5% allocation, respectively (as of Jan 22, 2018). The fund has returned 38.5% in a year. 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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