tracking India, Asia's third-largest economy, are mostly lower
today after the country's statistics ministry said GDP there
would grow by just five percent for the fiscal year ending March
That is well below growth of 6.2 percent seen in the previous
fiscal year and a far cry from growth of nine percent or more
seen in the go-go days of 2011.
Shares of the WisdomTree India Earnings ETF (NYSE:
), the largest India ETF by assets, are off 1.6 percent while
rival funds such as the PowerShares India Portfolio (NYSE:
) and the iShares S&P India Nifty 50 Index Fund (NASDAQ:
) are lower by 1.2 percent and 1.4 percent, respectively.
In December, the Reserve Bank of India forecast GDP growth of
5.5 percent while the country's finance growth estimated growth
would come in at 5.8 percent.
News of slower growth comes at a time when India ETFs are
arguably at a crossroads of sorts. Broadly speaking, India ETFs
outperformed the emerging markets universe in 2012, but that
out-performance has Indian equities
looking pricey relative to other developing world
The P/E ratio on the benchmark BSE Sensex 30 Index is above
16, according to WisdomTree data. Already vulnerable India
small-caps appear to be feeling the pinch of the lower growth
outlook as well. Shares of the EGShares India Small-Cap ETF
) are off 1.5 percent Thursday while the Market Vectors India
Small-Cap ETF (NYSE:
) is lower by 2.6 percent.
Including today's loss, SCIF is down nearly eight percent
year-to-date, indicating Indian small-caps have lagged their
large-cap brethren to start the new year.
Some familiar catalysts appear to be weighing on India's
growth prospects. While the Indian government enacted a series of
reforms in late 2012, including
opening the country's insurance and retail
sectors to more foreign investment
, the country still faces a significant infrastructure
Economists say India's slowdown is largely driven by the
country's slow pace of infrastructure development because of
bureaucratic hurdles and policies unfriendly to business,
according to the Wall Street Journal
Perhaps not surprisingly, the EGShares India Infrastructure
) is down 2.1 percent today, extending the ETF's year-to-date
loss above seven percent.
In the past year, INXX has tumbled nearly 10 percent as
India's infrastructure woes have been viewed by market
participants as a threat to growth there and a potential reason
for the country to lose its already tenuous hold on its
investment-grade credit rating.
Indicating that India has a long way to catch up to China in
terms of making domestic infrastructure a priority, the EGShares
China Infrastructure ETF (NYSE:
) has gained more than 12 percent in the past year.
Despite today's glum news, all is not lost for India and the
aforementioned ETFs. Citing increased domestic demand and
government reforms, Goldman Sachs forecast
2013 Indian GDP growth of 6.5 percent last
and some portfolio managers still see opportunity there.
"Potential upside surprises could develop as politicians
position themselves for the 2014 elections. After a frustrating
series of false starts and missteps, politicians may finally come
together to push through structural reforms. We believe even
minor steps in this direction could have a significant impact on
investor sentiment and tolerance for risk," WisdomTree Portfolio
Manager Rick Harper
said in a note
"While it is still far too early to call 2013 a victory for
investors with exposure to India, a series of positive
developments have primed the pump for positive performance. With
some stimulative policy from the RBI and a generally positive
outlook for emerging markets in Asia, we believe India has the
potential to be a solid performer in 2013."
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