Friday's glum performances aside, major India
have experienced something of a stealth rally over the past
month. That rally, or dead cat bounce as doubters may be apt to
call it, comes after ETFs tracking the "I" in the BRIC acronym
spent the bulk of the first quarter as
emerging markets laggards
That is saying something because many ETFs offering exposure
to the largest emerging markets have been duds in 2013. At the
country-specific level, all four of the major BRIC ETFs,
including the WisdomTree India Earnings ETF (NYSE:
), are lower year-to-date. EPI was off four percent at the start
of trading today, but at least that is far better than what
investors have been treated to with the comparable China and
Heading into Friday, EPI had gained 4.7 percent in the past
month while the rival PowerShares India Portfolio (NYSE:
) was up nearly three percent. The iShares S&P India Nifty 50
Index Fund (NASDAQ:
) surged 5.3 percent. All three are lower by at least 1.5 percent
Friday, but money has been flowing into Indian equities.
Foreigners bought $292.1 million more of Indian stocks than
they sold last week, the highest level since mid-March,
Bloomberg reported earlier this week
. Year-to-date, Indian stocks have the second-best inflows at
$10.6 billion among 10 major Asian markets behind Japan,
according to Bloomberg.
Inflows to Indian equities have come amid headlines that have
undoubtedly been more negative than positive. For example, even
with an obviously tenuous grasp on an investment-grade credit
rating, in late February India unveiled fiscal 2013-14 budget of
$309 billion, a 16 percent jump from the prior
Additionally, Finance Minister P. Chidambaram, who is widely
believed to be a candidate for prime minister, is looking to
impose new taxes on large companies to boost revenue rather than
reduce spending. Failure to reduce spending, as some countries in
the West have learned the hard way, usually draws the ire of
credit ratings agencies.
So just days after the budget was proposed, Fitch Ratings said
it would likely downgrade India to junk
. At BBB-, India already has the lowest credit rating of the four
Interestingly, and perhaps not surprisingly, the Indian
government believes the country is worthy of a credit upgrade.
That may be behind the declines in India ETFs today because on
Thursday, Indian officials met with Standard & Poor's in an
effort to land that upgrade.
Indian officials argued the outlook should be changed, and the
country deserved an upgrade for actions taken by Prime Minister
Manmohan Singh's government to put finances in order and bolster
. Officials made a similar pitch to Fitch earlier this month.
Traders and investors in the likes of EPI, PIN and Indy will
want to circle May 31 on their calendars. That is when India is
scheduled to deliver deficit data for 2012/13. A number of
around, or better yet below, five percent of GDP could spark
India ETFs higher.
On an entirely unrelated note, there is something else to
consider with India ETFs, at least EPI and INDY, which have $1.04
billion and $459.3 million in assets under management,
respectively. That being seasonality.
Specifically, this pair of ETFs is often quite dreadful in the
second quarter. INDY debuted in November 2009, so prior to this
year, there are three second quarters worth of data. The ETF
traded lower in all three. EPI debuted in February 2008. Even
when being nice and excluding the savage repudiation of emerging
markets seen throughout that year, the only second quarter of the
past four that saw EPI perform to the upside was 2009.
Those bullish on India should hope 2013 brings a repeat of
2012 when EPI and rival India ETFs offered gains of roughly 10
percent in the third quarter. Just be sure to watch the ratings
For more on ETFs, click
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