In recent times, developed markets like the U.S. and Europe
have been plagued by a high debt burden, unemployment and
creeping concerns over inflation. These economic woes resulted in
low growth, leaving little hope for improvement anytime soon, let
alone signs of an astounding recovery.
Hence, in response to the anemic growth in West, investors
have turned the spotlight on the Asia-Pacific economies that are
offering greater potential due to a relatively higher growth
prospects. To be specific, India has recently attracted a large
influx of investor attention, thanks to a slew of positive
reforms redefining the market demographics.
However, the picture isn't entirely rosy in the East. The
emerging markets in Asia have started to witness a slowdown owing
to weaker domestic macroeconomic cues and policy tightening as
well as a fragile export environment, which weighed on their
performances in the recent times. Like any other emerging market,
investing in Indian equities requires a steady appetite for risk
India ETFs: Getting Back On Track?
With some other countries, IMF estimates weakening growth in
India. In its October projection, the agency cut its 2012 and
2013 growth forecast for India from 6.1% and 6.5% to 4.9% and
as an Investment
Even though the estimates have been declining, India still
remains a strong growth vehicle in the global map, especially
compared to Western nations. A set of reformative measures, aimed
primarily at building an investor-friendly climate, have created
a buzz in the recent months and could rekindle growth levels
across the nation.
While India's economy is more sensitive to domestic demand, it
is also true that the country's capital markets are largely
dependent on foreign portfolio flows from institutional
investors. With the Indian Parliament's vote for FDI in
multi-brand retail, the government will proceed with the
liberalization of this sector to bring in more foreign capital to
promote economic growth. This led to a rally in the Indian equity
markets on account of increased capital flows by foreign
institutional investors (see
Does Your Portfolio Need An India ETF?
India is striving hard to avoid a credit downgrade and
revealed a plan in November to record a fiscal deficit of 5.3% of
GDP this financial year, higher than a previous target of 5.1%
but lower than year-ago rate of 5.8%, suggesting that despite
some bumps they are moving in the right
Investors looking to tap this economy in basket form can
S&P India Nifty 50 Index Fund
(INDY), which has a Zacks ETF Rank of 1 or Strong Buy. We expect
it to outperform some of its emerging market peers over the next
year. Given this, the product could be worth a closer look by
investors seeking exposure in this economy while also using our
quantitative Ranking system.
About the Zacks ETF Rank
The Zacks ETF Rank provides a recommendation for the ETF in
the context of our outlook for the underlying industry, sector,
style box or asset class. Our proprietary methodology also takes
into account the risk preferences of investors.
are ranked on a scale of 1 (Strong Buy) to 5 (Strong Sell) while
they also receive one of three risk ratings, namely Low, Medium,
The aim of our models is to select the best ETFs within each
risk category. We assign each ETF one of the five ranks within
each risk bucket. Thus, the Zacks Rank reflects the expected
return of an ETF relative to other products with a similar level
of risk (see more in the
Zacks ETF Center
For investors seeking to apply this methodology to their
portfolio in the India market, we have taken a closer look at the
top ranked INDY below:
S&P India Nifty 50 Index Fund (
Launched in November of 2009, iShares S&P India Nifty 50
fund (INDY) is a passively managed ETF designed to provide broad
exposure to the Indian equity market with a focus on resembling
the risk-return characteristics of large cap equities with a
medium to long-term view. The product has amassed a net asset
base of $0.35 billion.
INDY seeks to match the performance and yield of the S&P
CNX Nifty Index before fees and expenses. The Index is Indian
rupee-denominated, free-float capitalization weighted and
comprises 50 large cap stocks.
INDY provides an opportunity for diversification since the ETF
is not strongly correlated with the S&P 500 index as
indicated by an R-Squared value of 53.5% (see
Do Country ETFs Really Provide
). The ETF is extremely pricey with an expense ratio of 92 basis
points a year. The fund is liquid as it trades about 3.7 million
shares per day on average.
INDY is heavily weighted towards Financials (21.20%),
Computers Software (11.41%), Cigarettes (8.80%) and Refineries
(7.89%) making up about half of the basket alone. Healthcare,
Utilities and Telecommunication Services are sectors with lesser
allocation. From an individual holdings point of view, the ETF
holds 51 securities with almost 58% allocation to its top 10
However, it is prudent to note that the top 10 holdings
comprise stocks from a variety of sectors. ITC Limited (8.80%),
Reliance Industries Limited (7.38%) and ICICI Bank Limited
(7.04%) are the three top elements in the basket, with a combined
share of 23.22%.
Further, the Indian economy is less vulnerable to the European
crisis than many of its Asian counterparts, since India's
international trade with Europe is limited. The ETF is up by
almost 27% so far this year.
INDY has returned about 10.44% for the one-year period as of
September 30, 2012. The product also pays an annual dividend
yield of 0.48%. INDY has hit a low of $19.37 and 52-week high of
$26.19. The fund is currently hovering near its 52-week high
price and could be an interesting 2013 choice for investors
seeking more emerging market exposure.
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ISHARS-SP INDIA (INDY): ETF Research Reports
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