Rare is the government that actually helps investors. Be it
intentionally or unintentionally, many policymakers around the
globe have shown a tendency to roil financial markets. An
argument can be made that the bigger the government (think the
U.S., China and developed Europe), the heavier the hand of
government interference is in financial markets.
India, the world's largest democracy, is starting to do things
differently. Earlier in 2012, Standard & Poor's lowered its
outlook on India's sovereign credit rating to negative from
stable,
citing deteriorating economic fundamentals
.
A large part of the problem with India, and a major
contributing factor to Indian equities and ETFs, has been a
government that foreign investors have viewed as turning its back
on the countries economic woes. Those problems include inflation
and infrastructure that can be described as decrepit at best.
Already home to the lowest credit rating, BBB-, of the BRIC
countries and grappling with faltering stock prices, India's
government has recently taken steps to garner favor with foreign
investors. In short, Indian policymakers have reduced the
country's punitive diesel subsidy, opened the insurance and
retail sectors to more foreign investment
while injecting more liquidity into the banking
system
.
"I was pleased to see that the Indian government took
significant steps in mid-September to strengthen the economy and
encourage foreign investment into India," WisdomTree Research
Director Jeremy Schwartz said in a research note. "In my opinion,
these new policies have already started improving sentiment
toward India, which was reflected in India's ranking as the
best-performing country in the MSCI Emerging Markets Index in
September."
The impact of India's reforms on its equity market have been
palpable. In the past month, the iShares S&P India Nifty 50
Index Fund (NYSE:
INDY
), the WisdomTree India Earnings Fund (NYSE:
EPI
) and the PowerShares India Portfolio (NYSE:
PIN
) are up an average of 9.7 percent. That is better than triple
the gain posted by the iShares MSCI Emerging Markets Index Fund
(NYSE:
EEM
).
It is now fair to classify India ETFs as "resurgent" after the
funds were damaged by negative sentiment earlier this year.
"Earlier this year, the Indian government proposed a series of
tax measures, including General Anti-Avoidance Regulations
(GAAR), that would have a significant impact on foreign
investors," said Schwartz. "This hurt sentiment toward India; and
given the widespread criticism of this proposal, the prime
minister established an expert committee to review the
application of GAAR. The committee made various recommendations,
including deferring the implementation of GAAR by three years and
grandfathering existing investments, among other things."
India's efforts to open its burgeoning retail sector could be
a boon for funds such as as the EGShares India Consumer ETF
(NYSE:
INCO
). INCO is the only ETF exclusively devoted to the Indian
consumer. With INCO up 40 percent year-to-date, it might be fair
to say
the market is pricing in an anticipated surge in
Indian consumer spending
.
As far as the impact of other reforms on India ETFs, the
opening of the country's insurance sector to more foreign direct
investment is going overlooked. India's insurance industry is
worth an estimated $41 billion, but coverage penetration is poor
at just 4.4 percent of the population in life, and 0.71 percent
in non-life business,
according to the SME Times
.
Any positive sentiment toward Indian financial services firms
should benefit EPI. EPI, frequently viewed as the marquee India
ETF because it is home to over $1 billion in assets under
management, allocates over 25 percent of its weight to financial
services firms.
For more on India ETFs, click
here
.
(c) 2012 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.