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Top Ranked India ETF in Focus - PIN

Zacks Equity Research


Indian economy seems to be finally bottoming out, as a result of several reforms by the government and strong corporate earnings. (India ETFs: Getting Back On Track?)

The government has recently introduced various reforms and encouraged foreign direct investment in the country. The government granted permission to foreign supermarket chains to set up shop in India, gave consent to foreign airlines to procure stakes in local carriers, and lifted the state-regulated prices of some fuels.

Also, the rate cuts by RBI, or the Reserve Bank of India, in order to infuse liquidity in the economy played a positive role in driving the price of the ETFs. The bank howver cautioned that future cut in rates is only possible if inflation and current account deficit show an improvement. (India ETFs after Central Bank Rate Cut)

 According to the government, the economy will grow between 6.1% and 6.7% in the fiscal year starting April 1, after an estimated 5.5% growth for the current year—its slowest growth rate in a decade. A recent report by the Moody’s projects the economy to grow at ~7% from 2014 onwards.

That being said, the Indian economy cannot be expected to revert to 8-9% growth recorded in the last decade.

Poor infrastructure development, a high level of interest rate to tackle increasing inflation and elevated current and fiscal deficit appear to be main roadblocks in the growth of the economy.

With that being said, for investors having a bullish stance on the Indian economy hoping that the economy may improve and post healthy growth going forward, here we would highlight the Zacks top ranked ETF providing exposure to the Indian market.

PowerShares India Portfolio (PIN) is ranked Zacks Rank 2 or Buy and we expect it to outperform its peers in a timeframe of one year meaning it could be an excellent pick for investors seeking more exposure to this economy. (Zacks Top Ranked India ETF in Focus: INDY)

About the Zacks ETF Rank

The Zacks ETF Rank provides a recommendation for the ETF in the context of our outlook for the underlying industry, sector, style box, or asset class. Our proprietary methodology also takes into account the risk preferences of investors. ETFs are ranked on a scale of 1 (Strong Buy) to 5 (Strong Sell) while they also receive one of three risk ratings, namely, Low, Medium, or High.

The aim of our models is to select the best ETFs within each risk category. We assign each ETF one of five ranks within each risk bucket. Thus, the Zacks Rank reflects the expected return of an ETF relative to other products with a similar level of risk.

For investors seeking to apply this methodology to their portfolio in Indian ETF, we have taken a closer look at the top ranked PIN below:

PowerShares India Portfolio (PIN)

Launched in May 2008, PowerShares’ PIN is a passively managed exchange traded fund designed to track the Indus India Index. The Index is designed to replicate the Indian equity markets as a whole, through a group of 50 Indian stocks selected from a universe of the largest companies listed on two major Indian exchanges.

The fund has been designed to provide exposure to 50 Indian securities. The fund since its inception has built an asset base of $399.3 million but is not liquid as indicated by its trading volume level of more than 0.6 million shares a day.

PIN provides an opportunity for diversification since the ETF is not strongly correlated with the S&P 500 index as indicated by an R-Squared value of 44.58% (Do Country ETFs Really Provide Diversification?).

The fund offers a concentrated bet in the top ten holdings as indicated by its 56.7% exposure to these holdings. Among individual holdings, Infosys, Reliance and Oil & Natural Gas form the top line of the fund with total investment of 28.7%.

The fund allocates 60% of its asset base to Energy, Financials and Information Technology. A small proportion of the asset base has also been assigned to Consumer Staples, Materials, Health Care, Industrials, Telecommunication Services and Utilities.

The fund charges a fee of 79 basis points from investors and has returned 13.52% in 2012. In the year-to-date period its gain stands at 3.2%.

PIN has hit a low of $15.44 and a 52-week high of $20.92. The fund is currently hovering near its 52-week high price and could be an interesting 2013 choice for investors seeking more emerging market exposure.

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