Emerging markets had a rough start this year. Feeble demand,
infrastructure bottlenecks, lower commodity prices, and falling
currencies sent markets tumbling around the world.
Further, the chances of the Fed's QE3 tapering later this year
is compelling investors to pull out capital from higher risk
markets across the globe. This is because investors are
apprehensive of added troubles in the emerging nations from more
dollar appreciation and interest rate hikes once the stimulus is
Emerging Market ETFs Tumble on Global Worries
Among the emerging economies, India has been a weak performer
as the country is grappling with both internal and external
economic threats. Plagued with slowing economic growth,
persistent sky-high inflation, low per-capita income and massive
corruption, the country is now feeling the brunt of a weakening
currency as well.
Behind the Tumbling Rupee
A high current account deficit and the pullout of capital from
emerging markets have put pressure on the Indian rupee. The
currency hit an all-time low of $61.51 on Tuesday against the
greenback, breaching the all-time low of $61.21 seen on Jul 8.
The rupee has tumbled more than 12.5% so far this year.
dovish tone by Reserve Bank of India (RBI)
last week resulted in further decline in the currency. The recent
liquidity tightening measures have also failed to bolster the
While India isn't exactly an export powerhouse, a weak
currency is making imports more expensive. High levels of oil
import is resulting in continued trade deficits and in turn
Given wide trade deficits and a sharp fall in rupee, Indian
have been struggling this year, plunging double digits
year-to-date. In fact, India ETFs were hit hard last week (ending
Aug 2) and was the worst performer of all the emerging funds
A Weaker Rupee--Boon or Bane for India ETFs?
While this is true for all cap securities, small caps were
more beaten down than their large cap counterparts. Below, we
take a three Indian ETFs that track the Indian market.
All of these funds offer access to pint sized securities in
the nation and while they will likely see more volatility, they
could see better returns if the Indian economy trends in the
right direction (see more in the
EGShares Indxx India Small Cap Fund (
This fund tracks the Indxx India Small Cap Index, and is
relatively unpopular, while it has an expense ratio of 0.85%.
With a holding of 76 securities, the product is heavy on
financials with more than 27% share, while consumer goods,
industrials and healthcare also get double-digit allocations in
Apollo Hospitals, Mahindra & Mahindra and Aditya Birla
Nuvo are the top three elements in the basket with a combined
13.7% of assets, suggesting decent exposure in terms of
The fund lost nearly 10% in the past week alone and over 36.6%
in the year-to-date period. However, the ETF is trading at deep
values as the PE ratio is below 10.0 while the P/B is below
This indicates a nice entry point while the long-term outlook
is also positive. SCIN has a Zacks ETF Rank of #2 or 'Buy'
rating, suggesting that it is expected to outperform its rivals
over the one-year period (read:
Two India ETFs Leading Emerging Markets
Market Vectors India Small-Cap Fund (
This fund tracks the Market Vectors India Small-Cap Index,
holding 97 securities in its basket. It has amassed $78.1 million
in its asset base and charges a high fee of 91 bps a year from
Though the product has a slight tilt towards the top firm -
Niko Resources - at 5.29% of SCIF, it is pretty spread across
other securities. None of the securities hold more than 3.5%
From a sector look, financials and consumer discretionary take
the top two spots with 21% share each while information
technology and industrials make up for the next two spots with
The ETF has had a terrible year so far, delivering a negative
return of 9.19% last week and 42.85% year-to-date. However, the
fund is still trading at extremely low valuations as indicated by
P/E and P/B ratio of 8.44 and 0.74, respectively. SCIF currently
has a Zacks ETF Rank of #3 or 'Hold'
iShares MSCI India Small Cap Index Fund (
The newest entrant in the India space comes from ETF giant
iShares and its SMIN. The fund tracks the MSCI India Small Cap
Index and holds 145 securities in its basket. The ETF has
accumulated $2.6 million in total assets since inception and
charges 74 bps in fees per year.
The product is well diversified across individuals with the
top three holdings - Mahindra & Mahindra, Federal Bank and
Tata Global Beverages - making up for a combined 11% share. Here
again, financials is the top sector with 25.36%, followed by
consumer discretionary (17.22%), industrials (14.73%) and
materials (11.91%) (read:
3 Top Ranked Financial ETFs to Buy Now
The fund lost 8.26% last week and is down 33.58% year-to-date.
The ETF currently has a Zacks ETF Rank of # 3 or 'Hold'
Despite several constraints, growth in India is still among
the highest in the world. Positive factors like a rising middle
class, a younger population and growing spending power would
result in soaring domestic consumption and in turn fuel economic
This suggests that the India ETF outlook-at least over the
long term-isn't as poor as one might think. However, volatility
in the near term could be high so pay close attention to any
further moves in this rocky market.
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WISDMTR-IND RUP (ICN): ETF Research Reports
IPATH-MS INDIA (INP): ETF Research Reports
PWRSH-INDIA POR (PIN): ETF Research Reports
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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