After lagging their peers last year, India
are seeing a reversal of fortune in the
global stock market
PowerShares India (
) is up 6.1% year to date, vs. 0.27% foriShares Emerging Markets
). Last year PIN gained 14%, trailing EEM by about 5 percentage
points. It rallied from a 36% loss in 2011 vs. EEM's 19%
The volatility comes from India's account deficit,
fluctuations in the rupee's exchange rate and the country's heavy
reliance on foreign investors, notes Patricia Oey, an analyst
"When markets are in a 'risk-off' mood, foreign funds quickly
flow out of Indian equities, which tend to have low floats," Oey
wrote in a report about PIN.
What's more, India has an unfriendly business environment,
huge corruption, low foreign direct investment, poor
infrastructure, widespread poverty and high illiteracy rates.
WisdomTree India Earnings (
), the most widely traded ETF tracking the country, is up 4.7%
this year andiPath MSCI India Index ETN (
) is up 4%. They returned 25%-27% in 2012 after losing 40% in
All three trade above their 50- and 200-day moving averages,
indicative of a strong uptrend.
Among the three, INP sports the highest
IBD Relative Strength
combination of 70 and B+. That shows its price performance has
outpaced 70% of the market in the past 12 months and
institutional investors are heavily buying more shares than sell.
INP jumped 4% to a 52-week high last week.
The less-traveled passages to India includeWisdomTree Dreyfus
Indian Rupee Fund ETF (
),EG Shares India Consumer ETF (INCO) andMarket Vectors India
Small-Cap ETF (SCIF).
SCIF is up 1.17% year to date. It returned 27.5% in 2012
following a 56% nose dive in 2011.
In an interview last week with "The Economic Times," India's
top business newspaper, Adrian Mowat, chief Asian and
emerging-market equity strategist at JPMorgan, said India will
lead emerging markets in 2013. He projects emerging-market stocks
will return 15% in 2013 and India will gain even more, but he
didn't have an exact figure how much.
"We have got double-digit earnings growth out of India,
compared with no earnings growth in emerging markets," Mowat told
the Economic Times. "We think that fundamentals will attract
flows from international investors. We expect domestic investors
to turn from being net sellers to net buyers as interest rates
fall in India and the local savers no longer have the option of
high fixed deposit rates."
Current Account Concerns
But India's ever-growing current account deficit poses a major
risk. It remains above the Reserve Bank of India's comfort level.
The country's current account deficit -- the net amount it owes
to the rest of the world -- widened to $22.3 billion, or 5.4% of
gross domestic product, in the third quarter, up from $16.4
billion in the April-June period, according to the Reserve Bank
of India. A high account deficit puts the country at risk of a
credit ratings downgrade.
"I am not too anxious about that risk as there is plenty of
demand for emerging-market fixed income, but if there was a
change in the global bond market, then India would be vulnerable
to that because of this large current account deficit," Mowat