Indian economy appears to have turned the corner. Recent HSBC
survey--which maps manufacturing and services sectors-showed
that India expanded at a faster rate than China during the month
of February. (Read:
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Further, trade data for the month of February showed that the
exports rose for the second month in a row, pushing the trade
deficit to its lowest level in 10 months. Better trade data
resulting from pickup in exports to Europe, is likely to result
in an improvement in current account deficit this year.
The budget presented by the Indian government recently had
many investor and business friendly measures-which could put the
economy back on the higher growth path, even though the budget
did not do much to alleviate concerns regarding widening fiscal
and current account deficits.
As the inflation seems to be coming under control, there are
hopes for another rate cut by the central bank (after a cut in
January this year), which would further support growth.
According 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.
As a result of the recent optimism, the stock market is at its
highest level in about two years and the currency has been
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Earlier last year, S&P and Fitch had downgraded the
outlook on the country and warned of a sovereign credit
downgrade. If downgraded, India would be the first country in the
BRICs block to lose its investment grade rating.
It appears that the downgrade threats were a wake-up call for
the Indian policy makers. Later last year, the government
announced many significant reforms. While the reforms were a
welcome change after many years of policy paralysis in the
country since they indicated the government's willingness to take
political risks even in the face of looming elections, it is
important that the reforms are implemented at the earliest.
Further, even with the recent optimism, it is quite unlikely
that the economic growth will revert to 8-9% growth recorded
during 2004-2011 anytime soon. India suffers from some structural
problems like high fiscal deficit, massive corruption, chronic
inflation and very bad infrastructure.
Indian stock market exhibits high volatility since its
performance is largely driven by foreign institutional inflows.
The currency also remains vulnerable to major capital flows, even
though the country has foreign exchange reserves of approximately
$300 billion, as the currency market is much less liquid than
major currency markets. (Read:
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At the same time, despite several constraints, the growth in
India is still one of the highest in the world. Positive factors
like a rising middle class and a younger population with growing
spending power which results in soaring domestic consumption will
continue to fuel growth.
For investors seeking broad exposure to Indian equities,
following ETF choices are available:
Wisdom Tree India Earning Fund
EPI is the most popular ETF in this space, with about $1.1
billion in AUM. It tracks the Wisdom Tree India Earning Index,
which weights the Indian companies based on their earnings. It
charges the investors 83 basis points for annual expenses.
In terms of sector weightings, the fund has highest exposure
to financials (26%), followed by energy (21%), information
technology (14%) and materials (10%).Top 10 holdings account for
more than 40% of total holdings. EPI is currently Zacks #1 Rank
(Strong Buy) ETF.
PowerShares India Portfolio
PIN which tracks the Indus India Index, has assigned highest
weighting to the Energy sector (26%), followed by information
technology (19%) and financials (18%).
The expense ratio of the ETF is 81 basis points. Top ten
holdings constitute 58% of the holdings. PIN is currently
Zacks #2 Rank (Strong Buy) ETF.
S&P India Nifty 50 Index Fund
INDY follows S&P CNX Nifty Index, a free float market cap
weighted index of 50 largest and most liquid Indian companies. It
charges the investors 92 basis points for annual expenses.
Top 10 companies in the fund account for 59% of the fund.
Sector weighting are: financials (28%), Information Technology
(14%) and power (13%). INDY is currently Zacks #1 Rank (Strong
iShares MSCI India Index Fund
This is the newest ETF in the space, launched in February last
year. The fund follows MSCI India Index, which is float adjusted
market cap weighted index. With the expense ratio at 0.67%, this
is the cheapest option now.
Financials enjoy highest weighting (31%), followed by
information technology (17%) and energy (12%). Top ten companies
account for more than half of the total holdings. INDA is
currently Zacks #2 Rank (Strong Buy) ETF.
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WISDMTR-IN EARN (EPI): ETF Research Reports
ISHARS-M INDIA (INDA): ETF Research Reports
ISHARS-SP INDIA (INDY): ETF Research Reports
PWRSH-INDIA POR (PIN): ETF Research Reports
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