India stock ETF investors have seen outsized gains this year
that may stay on course if Prime Minister Narendra Modi unveils
anticipated economic reforms.
But market activity has been muddled over the past few days as
investors grappled with what Modi's maiden budget was likely to
Some of the recent sell-off in India ETFs can be attributed to
fears that Modi's budget could focus on long-term economic
revival instead of making hoped-for dramatic moves, one analyst
"That may disappoint some investors," said Neena Mishra,
director of ETF research at Zacks Investment Research. Besides,
she added, expectations for the budget are already baked into
current stock prices, and "many investors, particularly
shorter-term investors, are now looking for opportunities to take
While some recent news reports have said that India ETFs could
get an added jolt from quarterly corporate earnings set for
release starting this week, analysts who spoke to IBD were less
"I'm not so positive on the shorter-term prospects for India
ETFs given the huge surge already seen this year," Mishra
"The new budget, earnings -- I don't think these will serve as
significant catalysts in the coming weeks, given the recent
strong market performance," said Patricia Oey, a senior analyst
with Morningstar. Like Mishra, Oey noted that optimism around
Modi's potential impact on the Indian economy is already
reflected in Indian stocks prices.
Good Year For India ETFs
WisdomTree India Earnings (
), the flagship India ETF with $1.7 billion in assets, has
rallied 29% so far this year after declining 9% last year. Some
18% of this year's gains came in the last three months.
EPI's portfolio has an average price/forward-earnings ratio of
13.63, according to Morningstar. The price-to-book ratio is
The top holding of EPI is Reliance Industries, with about 8%
of assets. The conglomerate with interests in energy, retail and
telecommunications is up 12% this year. Another top holding,
State Bank of India, is up 47%.
The year-to-date leader among nonleveraged India ETFs,Market
Vectors India Small-Cap (
), has handed
a 53% gain this year after swooning 29% last year. It has a P/E
of 11.97 and a P/B of 1.22. Its top holding is Unitech
International, a real estate company that is up 85% this year.
Another top holding, Amtek Auto, is up 194%.
By comparison, the benchmark SPDR S&P 500 (
), which tracks the broad U.S.
, has risen 7% this year, following a 32% gain last year.IShares
MSCI Emerging Markets (
) is up 6% this year, following on last year's 4% decline.IShares
MSCI EAFE (
), which tracks developed world markets, is up 4% this year,
adding to its 21% advance in 2013.
On the budget front, Mishra said investors expect the
government to simplify and rationalize the complex tax regime,
improve infrastructure and narrow deficits. The government would
probably announce measures to widen the tax base and disinvest
its holdings in some public-sector companies. Easing restrictions
on foreign investments in some important sectors is also likely,
"In order to revive growth and boost investments, the Modi
government needs to introduce a number of critical market
reforms," she said.