India ETFs: New Global Stock Market Leaders
PowerShares India ( PIN ) is up 6.1% year to date, vs. 0.27% foriShares Emerging Markets Index ( EEM ). Last year PIN gained 14%, trailing EEM by about 5 percentage points. It rallied from a 36% loss in 2011 vs. EEM's 19% loss.
The volatility comes from India's account deficit, fluctuations in the rupee's exchange rate and the country's heavy reliance on foreign investors, notes Patricia Oey, an analyst with Morningstar.
"When markets are in a 'risk-off' mood, foreign funds quickly flow out of Indian equities, which tend to have low floats," Oey wrote in a report about PIN.
What's more, India has an unfriendly business environment, huge corruption, low foreign direct investment, poor infrastructure, widespread poverty and high illiteracy rates.
WisdomTree India Earnings ( EPI ), the most widely traded ETF tracking the country, is up 4.7% this year andiPath MSCI India Index ETN ( INP ) is up 4%. They returned 25%-27% in 2012 after losing 40% in 2011.
All three trade above their 50- and 200-day moving averages, indicative of a strong uptrend.
Among the three, INP sports the highest IBD Relative Strength and Accumulation-Distribution Ratings combination of 70 and B+. That shows its price performance has outpaced 70% of the market in the past 12 months and institutional investors are heavily buying more shares than sell. INP jumped 4% to a 52-week high last week.
The less-traveled passages to India includeWisdomTree Dreyfus Indian Rupee Fund ETF ( ICN ),EG Shares India Consumer ETF (INCO) andMarket Vectors India Small-Cap ETF (SCIF).
SCIF is up 1.17% year to date. It returned 27.5% in 2012 following a 56% nose dive in 2011.
In an interview last week with "The Economic Times," India's top business newspaper, Adrian Mowat, chief Asian and emerging-market equity strategist at JPMorgan, said India will lead emerging markets in 2013. He projects emerging-market stocks will return 15% in 2013 and India will gain even more, but he didn't have an exact figure how much.
"We have got double-digit earnings growth out of India, compared with no earnings growth in emerging markets," Mowat told the Economic Times. "We think that fundamentals will attract flows from international investors. We expect domestic investors to turn from being net sellers to net buyers as interest rates fall in India and the local savers no longer have the option of high fixed deposit rates."
Current Account Concerns
But India's ever-growing current account deficit poses a major risk. It remains above the Reserve Bank of India's comfort level. The country's current account deficit -- the net amount it owes to the rest of the world -- widened to $22.3 billion, or 5.4% of gross domestic product, in the third quarter, up from $16.4 billion in the April-June period, according to the Reserve Bank of India. A high account deficit puts the country at risk of a credit ratings downgrade.
"I am not too anxious about that risk as there is plenty of demand for emerging-market fixed income, but if there was a change in the global bond market, then India would be vulnerable to that because of this large current account deficit," Mowat said.