U.S. investors often stereotype the Indian economy as a cluster
of gigantic technology outsourcing companies. But those who bought
into the ETFs that most closely conform to that stereotype would
have been left lagging not only the real Indian stock market but
Wall Street as well.
[caption id="attachment_59481" align="alignright" width="300"
caption="Mosque in Mumbai"]
[/caption]
Out of the many funds that concentrate on India, the most
technology-heavy are the PowerShares India Portfolio (
PIN
,
quote
) and the iPath MSCI India ETN (
INP
,
quote
), each weighted roughly 17% in global outsourcing names like
Infosys (
INFY
,
quote
), Wipro (
WIT
,
quote
) and Patni (
PTI
,
quote
).
As it happens, PIN is up maybe 2.4% so far this year and INP has
gained 6.2%. In both cases, declines in the tech sector have been
substantial as a
weak rupee does nothing
to save these companies from increasingly fierce
competition from the Philippines
and elsewhere.
INP at least has a massive overweight in india's high-flying
banks ICICI (
IBN
,
quote
) and HDFC (
HDB
,
quote
) to balance the outsourcers in their weakness. Effectively
doubling down on the financial sector -- a 25% allocation in INP,
as opposed to barely 11% in PIN -- made a huge difference.
Likewise, PIN was held back by its energy holdings, none of
which trade in the United States and most of which have been under
pressure from sagging demand for oil and even worse declines in
coal prices.
The relatively new large-cap Nifty 50 India fund (
INDY
,
quote
) has fared a bit better than either INP or PIN, largely due to its
combination of an overweight to banks similar to what INP offers
and a slight underweight away from technology. The differences may
only account for 3% to 4% of the fund's holdings, but all together
they still give INDY an incremental edge: the fund is up 7.3% so
far this year.
And the best performer of the pack has been WisdomTree's India
Earnings fund (
EPI
,
quote
), up 8%. This portfolio has benefited from all the edges discussed
so far, including the lowest allocation to technology at 11%, the
highest allocation to banks at 26% and a middle-of-the-road 17%
weight in energy.
Of the four, only EPI has beaten the S&P 500 year to date.
However, it hasn't topped the broad Mumbai market itself, where the
BSE index is up 8.4%.
Bringing the BSE into the discussion gives us a place to look at
just what the role of technology really is in the Indian stock
market. Granted, the tech sector accounts for three of the six
biggest India stocks that trade in the United States -- INFY, WIT
and PTI -- and about half the total market capitalization in the
group.
Add Tata Consultancy, which runs the biggest IT shop in the
country and doesn't trade over here, and technology accounts for
maybe $100 billion in market cap.
That's a huge chunk of the Indian equity that U.S. traders can
directly access via American depositary receipts. But this still
isn't the Nasdaq. The banks HDB and IBN are roughly equally as big
as INFY, WIT and PTI put together, and counting their
non-U.S.-traded counterparts, the sector also clocks in at a little
under $100 billion.
Ultimately, India itself is a $1 trillion market. Of the four
funds we've looked at, only EPI comes close to reflecting that
real-world weight -- so it shouldn't come as a surprise that it's
come closest to providing accurate exposure to the underlying
Mumbai market's actual performance.
A "true" India fund might assign more or less than 10% of its
assets to banking and technology and another 15% to energy,
although none of those stocks trade in the United States, so you'll
need either a foreign brokerage account or the right "hybrid" mix
of ETFs.
