The WisdomTree India Earnings ETF (NYSE:
) and the PowerShares India Portfolio (NYSE:
) are among the marquee India funds trading higher Tuesday after
Asia's third-largest economy announced an interest rate cut. EPI
and PIN are each higher by about half a percent on the news.
Overnight, the The Reserve Bank of India pared its benchmark
interest rate by 25 basis points to 7.75 percent. The move,
though widely expected, is RBI's first rate cut in nine months.
In a surprise move, RBI also pared the cash reserve ratio, or the
amount of deposits Indian banks must keep with the central bank,
by 25 basis points to four percent.
That could pump an added $3.3 billion into the Indian banking
This is the second time RBI has lowered the cash reserve ratio
the third quarter of 2012
and the news comes at a time when Indian banks are dealing with a
rising number of bad loans.
The ratio of bad debt at Indian banks jumped to its highest
level in at least five years at the end of the third quarter,
Bloomberg reported last week
Increased liquidity has the potential to bolster the financial
positions of Indian banks, which make often make up sizable
portions of the major India
. For example, the $1.29 billion EPI devotes nearly 27 percent of
its weight to financials while that sector accounts for 17.6
percent of PIN's weight.
The iShares S&P India Nifty 50 Index Fund (NASDAQ:
) allocates about 21.2 percent of its weight to financial
Even with the rate cut and reserve ratio announcements, RBI
offered up a good news/bad news outlook on the Indian economy.
Already enduring slowing growth after years of being home to one
of the most torrid growth clips in the developing world, India is
projected to slow further in the current fiscal year.
RBI lowered its growth estimate to 5.5 percent for the current
fiscal year from 5.8 percent. The good news is that the central
bank also slashed its March headline inflation estimate to 6.8
percent from 7.5 percent.
Inflation, long a problem for India's domestic economy and
equity markets, is seen as cooling. However, news of the lower
headline inflation estimate from RBI is only having a minimal
impact on India small-cap ETFs today, which offer noticeable
exposure to the Indian consumer.
The Market Vectors India Small-Cap Index ETF (NYSE:
) is up just 0.21 percent while the EGShares India Small Cap ETF
) is higher by just 0.32 percent.
SCIF allocates about 27 percent of its combined weight to
discretionary and staples names
while SCIN has about 21 percent exposure to the Indian
While SCIF and SCIN are not as big or heavily traded as their
large-cap counterpart, the two may offer a cautionary tale about
the near-term outlook for Indian ETFs. EPI, INDY and PIN are all
in the green since the start of 2013. SCIF and SCIN are down 5.3
percent and 4.3 percent, respectively, and that is including
Both funds have recently fallen below their 20- and 50-day
moving averages, and in the case of SCIF, that fund is only about
four percent above its 200-day line.
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