Investor sentiment towards emerging markets finally reversed
after the surprise delay in QE tapering by the Fed. These markets
are now showing clear signs of recovery and investors are trying
to reap returns from their current depressed share prices (read:
Can These Emerging Market ETFs Continue to
One such market that has shown a sharp recovery is India, thanks
to a slew of measures taken by the new RBI Governor,
strengthening rupee and foreign capital inflows.
Inside the Recent Surge
The Asia's third largest economy is trying to liberalize its
financial markets in an effort to attract more foreign investors.
In addition, India is in talks to enter into the emerging
markets' bond indices.
The Indian currency has shown a surprising comeback with
double-digit gains after hitting a record low of around 69 per
dollar during the month of August. In fact, the rupee was the
best performing currency in September, outshining other major
global currencies (read:
Play Rising Rupee with These Two ETFs
This strength was buoyed by RBI measures that allow banks to swap
dollars received in foreign currency deposits for rupees and
double the money that banks can raise through overseas bonds,
which can also be swapped for rupees.
Improving fundamentals and a solid currency rebound have been
well received in the markets and Indian stocks have given
impressive performances over the past month. In fact, India ETFs
have been the best performer among all the emerging Asia Pacific
funds over the trailing one month.
While this is true for all cap securities, small caps surged
higher than their large cap counterparts. Below, we take look at
the three ETFs, which track the Indian small cap market.
All of these funds offer exposure to pint-sized securities in the
nation and while they will likely see more volatility, they could
see better returns should the current trend continue as we move
ahead toward the end of the year (see:
all the emerging Asia Pacific ETFs here
EGShares Indxx India Small Cap Fund (
This fund tracks the Indxx India Small Cap Index, and is
unpopular and illiquid with just $18.2 million in AUM. It has an
expense ratio of 0.85%. With a holding of 76 securities, the
product is heavy on financials with one-fourth share, while
consumer goods, industrials and healthcare also get double-digit
allocation in the basket.
Apollo Hospitals, Mahindra & Mahindra and Aditya Birla Nuvo
are the top three elements in the basket with a combined 14.86%
of assets, suggesting decent exposure in terms of individual
The fund gained nearly 8% over the trailing one month but is down
28.7% in the year-to-date period. (read:
India ETFs After the Surprise Rate Hike
Market Vectors India Small-Cap Fund (
This fund tracks the Market Vectors India Small-Cap Index,
holding 95 securities in its basket. The ETF has amassed $94.8
million in its asset base and charges a high fee of 91 bps a year
Though the product has a slight tilt toward the top firm -
MindTree - at 5.13% of SCIF, it is pretty spread across other
securities. None of the securities hold more than 3.8% share.
From a sector look, consumer discretionary and financials take
the top two spots with 22% share each while information
technology (17.1%) and industrials (15.9%) make up for the next
While the ETF delivered a negative return of 38%, it added 8.75%
over the past month on recent optimism in the nation.
iShares MSCI India Small Cap Index Fund (
This product follows the MSCI India Small Cap Index and holds 158
securities in its basket. The ETF has accumulated $2.8 million in
total assets and charges 74 bps in fees per year.
The product is well diversified across individuals as each
security holds less than 3.2% of total assets. Here again,
consumer discretionary is the top sector with 19.35%, followed by
financials (18.95%), industrials (17.10%) and materials (13.67%).
The fund is down 25% year-to-date while gained over 9.5% over the
trailing one month (read:
India ETFs Rebound on Central Bank Steps
MKT VEC-INDI SC (SCIF): ETF Research Reports
EMERG-GS INDIA (SCIN): ETF Research Reports
ISHARS-M IND SC (SMIN): ETF Research Reports
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Though the short term looks promising on various stimulus
measures, the long-term outlook might be gloomy given high
current account deficit and stubborn inflation. However, growth
in India is still the highest in the world thanks to the
country's rising middle class, a younger population and growing
spending power that is boosting domestic consumption.
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