The rebound in Indian equities fueled by government action to
loosen restrictions on foreign investment caught plenty of
investors off guard. After Standard & Poor's lowered its
outlook on
India's credit rating to negative from stable
in April, investors fled stocks in Asia's third-largest economy,
punishing India ETFs in the process.
When those funds started to bounce, prompting a
series of bull calls
from noted analysts, some money managers were caught asleep at
the wheel. The efforts of those managers to play catch up with
the Indian stock market prompted surging inflows into
India-specific ETFs.
Unexpected reforms announcement by the government have buoyed
the recent returns of ETFs ranging from the WisdomTree India
Earnings ETF (NYSE:
EPI
) to the Market Vectors India Small-Cap ETF (NYSE:
SCIF
). Many foreign institutional investors prefer ETFs such as EPI
and SCIF as a way of tapping resurgent Indian stocks
due to a perceived lack of liquidity in the
country's equity market
.
All that means inflows to India ETFs have surged in recent
months. Take the examples of EPI and one of its primary rivals,
the PowerShares India Portfolio (NYSE:
PIN
). In late May, EPI had just over $700 million in AUM while PIN
had a little more than $300 million,
according to India ETFs
.
As of October 23, EPI's AUM total had swelled to over $1
billion. PIN will start trading today with almost $386 million in
AUM. In the past 90 days, EPI and PIN are up 12.3 percent and
10.8 percent, respectively.
Interestingly, valuations on some India ETFs remain
compelling. WisdomTree re-balanced the India Earnings Index, the
index EPI tracks, in late September and that
dragged the index's P/E down to 8.8
. PIN's P/E ratio at the end of September was 14.85, indicating
the fund is cheaper on that basis than the iShares MSCI Brazil
Index Fund (NYSE:
EWZ
).
Robust inflows to India-specific ETFs have not been
exclusively reserve for EPI and PIN. The iShares S&P India
Nifty 50 Index Fund (NASDAQ:
INDY
) has seen its AUM total steadily rise since late 2011. At that
time, INDY had $225 million in AUM. At the close of U.S. markets
on Wednesday, that number was almost $294 million.
There are obstacles and surprises, though. Obstacles loom in
the form of catalysts, or lack thereof. Money has started
trickling out of India ETFs in recent weeks as some investors
view the funds as overbought and in need of a spark to continue
moving higher. That spark could be an interest rate cut from the
Reserve Bank of India, but there are no guarantees on that
front.
Surprises include the fact that the EGShares India Consumer
ETF (NYSE:
INCO
) and the EGShares India Infrastructure ETF (NYSE:
INXX
), two of the best-performing India ETFs over the past 90 days,
have not seen much in the way of inflows,
according to Index Universe data
.
Another issue is how foreign institutional investors choose to
access India. Given the country's small weight in some benchmark
global indexes (India represents less than seven percent of the
MSCI Emerging Markets Index), some investors prefer to access
India through a multi-country emerging markets ETF such as the
iShares MSCI Emerging Markets Index Fund (NYSE:
EEM
) rather than with India-specific funds.
In part, India's small weight in broader global indexes
explains why India-specific ETFs trail some China funds in terms
of AUM. The AUM totals for EPI, INDY and PIN could be added, then
tripled and the resulting number would still trail the iShares
FTSE China 25 Index Fund's (NYSE:
FXI
) assets by about $900 million.
Perhaps that implies India ETFs have room for growth. If the
government can execute recently announced firms to the country's
fullest advantage while bolstering infrastructure, then India
ETFs could be compelling long-term bets.
For more on India ETFs, click
here
.
(c) 2012 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.