After a precipitous decline that started late in the first
quarter, Indian equities and many of the corresponding ETFs have
rebounded in recent weeks. The move higher has prompted at least
one upgrade of Asia's third-largest economy as iShares Global Chief
Investment Strategist Russ Koesterich raised his rating on India
from Underweight to Neutral.
Koesterich advocated an Underweight rating on India on February
6. At the time, the call appeared early as major India ETFs
including the WisdomTree India Earnings ETF (NYSE:
) and the iShares S&P India Nifty 50 Index Fund (NASDAQ:
) and others continued a torrid pace set at the start of the year,
rallying into early March.
The call proved prescient as EPI and INDY have lost 11.6 percent
and 7.6 percent, respectively since February 6. Indian small caps
have been even worse offenders. Since February 6, the Market
Vectors India Small-Cap ETF (NYSE:
) has plunged 20 percent while the rival EGShares India Small Cap
) is off 12.5 percent.
The aforementioned ETFs and others tracking the "I" in BRICS
have started to turn around. Now, foreigners are gobbling up Indian
equities. Offshore funds purchased a net $522.1 million of Indian
shares on Sept. 14, the highest level in ten weeks,
Bloomberg reported, citing the Securities &
Exchange Board of India
In a blog post,
Koesterich outlines several reasons for the India
. He notes that India reported solid second-quarter GDP growth of
"We've also upgraded our view on India's growth," Koesterich
said. "Our new forecast projects 6.4 percent annual growth in GDP,
up from 6.1 percent."
Improved growth in the medium term could be buoyed by reduced
diesel subsidies, looser rules on foreign ownership in India's
retail sector and "aggressive growth target from India's planning
commission: 8.2 percent from 2012 through 2017, surpassing the 7.9
percent target achieved over previous five years."
Loosening of investing restrictions in India's retail sectors
could be a boon for ETFs such as the EGShares India Consumer ETF
). Thinly traded
and often forgotten in the India ETF
, INCO is the only ETF focused entirely on the Indian consumer.
INCO has found a way to hold up well among the India ETF
carnage. In the past six months, the fund has jumped seven percent
while EPI has lost 7.4 percent. SCIF has plunged 17.4 percent over
the same time.
India's macroeconomic struggles this year - inflation and
slowing growth chief among them - have made the operating
environment tricky for established and new ETFs alike. iShares
rolled out two new India ETFs in February BEFORE Koesterich shifted
his rating to Underweight. In April, Standard & Poor's
lowered its outlook on India's credit rating to
negative from stable
. India sports a BBB- minus credit rating from S&P, the lowest
investment grade rating and the lowest credit rating among the BRIC
The two new iShares India ETFs, the iShares MSCI India Index
Fund (BATS: INDA) and the iShares MSCI India Small Cap Index Fund
(BATS: SMIN) have attracted less than $25 million in assets under
management combined. However, those INDA and SMIN have participated
in the India rebound, rising 6.8 percent and 5.5 percent,
respectively, over the past month.
Despite the recent ebullience surrounding India ETFs,
Koesterich's Neutral rating on the country is arguably appropriate
given the macro uncertainty still surrounding the country and he
acknowledges in the blog post that a move to a bullish view is
somewhat far off.
"High inflation, together with the weak rupee, limit the scope
for future rate cuts, which could stimulate the economy,"
Koesterich wrote. "Fiscal and current account deficits have been
persistent, and policy making is slow and at times erratic. This
hinders the follow-through that we would like to see in
implementing structural reforms. But in the meantime, we would now
favor a neutral, or benchmark position in Indian equities."
For more on India ETFs, click
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