Using the WisdomTree India Earnings ETF (NYSE:
) as the measuring stick, India has been the top performer among
the BRIC quartet in 2012. Even with a 2.3 percent tumble on
Friday, EPI's 20.8 percent year-to-date gain is nearly twice as
good as the comparable Russia ETF. EPI has also delivered about
870 basis points more alpha than the largest China ETF. Forget
Brazil, because the iShares MSCI Brazil Index Fund (
) is down on the year.
The bullish performance of EPI and its counterparts belies the
fact that 2012 has been a tumultuous one for Indian stocks. Amid
slowing growth, major infrastructure problems and a government
accused of not caring much about either issue,
India was at risk of losing its tenuous
investment-grade credit rating
. That prompted significant slides in India
during the second quarter.
Fortunately for investors,
moved to bolster the economy in the third quarter with policy
measures including reduced diesel subsidies and looser rules on
foreign ownership in the retail sector.
Indeed, it has been an up-and-down year for Indian equities
and some of the corresponding U.S.-listed ETFs. Now, a new issue
has entered the picture. That being the slack performance of
Indian information technology firm Infosys (NASDAQ:
Shares of Infosys have plunged 13.5 percent in the past three
months, with much of those declines attributable to the company's
plan to shift to more of a consulting outfit away from
as Barron's recently reported
. That would put Infosys in direct competition with the likes of
) and International Business Machines (NYSE:
The problem for India ETFs is that information technology is
usually a significant sector weight in the large-cap funds and
Infosys is often a top-10 holdings in these ETFs. Infosys is
EPI's third-largest holding with a weight of 5.42 percent. The
PowerShares India Portfolio (NYSE:
) devotes 9.4 percent to the stock.
Infosys represents almost six percent of the iShares S&P
India Nifty 50 Index Fund's (NASDAQ:
) weight and more than seven percent of the iShares MSCI India
Index Fund (BATS: INDA). Those weights are not large enough to
completely wreck these ETFs (EPI and INDY are slightly higher
over the past 90 days), but the Infosys allocations are just
enough to be near-term problematic.
The solution for investors looking to stay in the Indian ETF
game while dodging Infosys for the time being is easy to spot.
That objective can be accomplished with small-cap ETFs. There are
three ETFs devoted exclusively to Indian small-caps: The EGShares
India Small ETF (NYSE:
), the Market Vectors India Small-Cap ETF (NYSE:
) and the new iShares MSCI India Small Cap Index Fund (BATS:
Over the past 90 days, SMIN has surged 7.4 percent while the
average returns offered by SCIF and SCIN are about 4.5 percent.
None of these ETFs are heavily exposed to tech stocks and since
Infosys is a large-cap, it is barred from entry to these
All are heavy on financials with SMIN devoting almost 28
percent of its weight to the sector. SCIN checks in with an
almost 24 percent weight to bank stocks. The real story with
India small-cap ETFs, beyond the obvious advantage of not being
home to Infosys, is the exposure to the consumer these ETFs
To this point in 2012, the EGShares India Consumer ETF (NYSE:
is far and away the top-performing India ETF
with a gain of 51 percent. That performance indicates some
investors are feeling good about the potential of the Indian
consumer, but others have a tendency to overlook INCO because of
its size and low trading volume.
The aforementioned India small-cap ETFs stand as suitable
alternatives because all are highly levered to the Indian
consumer. Over 21 percent of SCIN's sector allocations are direct
plays on the consumer. SCIF is in the area of 20 percent while a
combined 23.7 percent of SMIN's weight goes to discretionary and
The bottom line is that if the Indian consumer proves
resilient in 2013, Infosys will have little or no bearing on
SCIF, SCIN and SMIN. And that could be a good thing.
For more on ETFs, click
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