Markets

Indian Economy Steps Up: ETFs to Buy

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After a moderate performance so far this calendar year, the Indian market appears set to exhibit a meaningful rally. In fact, the economy grew 7.6% in fiscal 2016 - the quickest pace in four years - higher than 7.2% in the prior year.

In fact, the economy advanced as much as 7.9% year over year in the January-to-March period of 2016, thumping market expectations of a 7.5% increase and 7.2% growth recorded in the previous quarter. The latest performance was the best in six quarters.

Breakdown of GDP Numbers

This tall feat was pulled off with the help of solid private spending while investments and exports underperformed. Private consumption increased 8.3%, higher than 8.2% in the previous quarter. Exports fell 1.9%, following an 8.9% decline in the previous quarter.

Despite prime minister Modi's earnest efforts to boost capital spending at the corporate level, capital expenditure dropped an annual 1.9% versus a 1.2% expansion in the December quarter. Per Reuters , mounting bad loans at Indian banks left them cautious of lending further, adding to India's investment woes.

Good Monsoon to Drive India Ahead?

Worries over monsoon deficiency, the key cause of last year's upheaval is unlikely to bother this year. Last year, lower rains weighed on the all-important agricultural sector. But the president of the Confederation of Indian Industry (CII) now expects the agricultural sector to expand at the rate of 6% this year driven by the usual monsoon and "that adds about 0.5-1% to GDP," as per CII president.

Even Deutsche Bank is supportive of this fact. India is going to face a La Nina event this year, which is the positive phase of the El Niño Southern Oscillation and results in cooler than average sea surface temperatures in the central and eastern tropical Pacific Ocean. It is often seen as the opposite of El Nino (read: 5 ETF Losers of 2015 Hoping for a Rebound in 2016 ).

As per the research house , the Indian agricultural sector exhibits a solid correlation with La Nina with average annual rains being higher than the long-term average. The bank noted that agri GDP in La Nina years have expanded at an average 7.8% year over year versus an average 2.3% jump seen in years without La Nina. Not only the agricultural sector; Deutsche Bank was also bullish on private consumption and investment growth in La Nina years.

IMF Moderately Bullish

The International Monetary Fund, which reduced global growth forecasts recently, maintained its growth projection at 7.5% for India for this fiscal year. This represented an uptick in growth noticed in fiscal 2015 (7.3%).

GDP Growth Forecast

A per the Federation of Indian Chambers of Commerce and Industry (FICCI), the Indian economy is expected to expand 7.7% in the ongoing fiscal year blessed by heavy monsoon. However, FICCI does not see the investment cycle to revive before six months. Deutsche Bank expects the Indian economy to log 7.8% growth in fiscal 2017. Fitch expects India's economic growth to touch 8% by fiscal 2018-19 backed by the gradual execution of structural reforms.

Apart from the forecast of a better monsoon, cuts in policy repo rate by 150 basis points since January 2015 augur well for the economy. Notably, the Indian economy now has a repo rate of 6.5% - a level not seen in over five years. An impending pay hike for government workers is also likely to aid consumption ahead (read: India ETFs to Soar on Rate Cut? ).

How to Play?

Though a sluggish recovery in investments, choppy exports in the wake of global growth worries and uptick in food price inflation may pose threats to GDP growth, economic momentum at present is nothing less than amazing (read: Forget China; Buy These 3 India ETFs Instead ).

All these make the case for India investing stronger. While all India ETFs stand to gain, below we highlight a few that have solid chances of outperforming.

iShares India 50 ETF (INDY)

The fund looks to track the performance of the top 50 companies by market capitalization in the Indian market. The fund has a Zacks Rank #2 (Buy).

WisdomTree India Earnings ETF (EPI)

The fund looks to follow the investment results of profitable companies in the Indian equity market. The fund is heavy on financials followed by IT, energy and consumer discretionary. The fund has a Zacks Rank #2.

PowerShares India ETF (PIN)

The fund gives exposure to 50 Indian stocks. Energy, IT, health care and financials get a double-digit weight in the fund. PIN also has a Zacks Rank #2.

EGShares India Consumer ETF (INCO)

Since private consumption is pivotal in India as evident from the latest GDP report, a look at this consumer ETF is warranted. The fund has a Zacks ETF Rank #3 (Hold).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days . Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

ISHARS-SP INDIA (INDY): ETF Research Reports

EMERG-GS IIIIF (INXX): ETF Research Reports

WISDMTR-IN EARN (EPI): ETF Research Reports

EGS-INDIA CNSMR (INCO): ETF Research Reports

ISHARS-M INDIA (INDA): ETF Research Reports

PWRSH-INDIA POR (PIN): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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