Should You Buy India ETFs on "Best G-20 Growth" & Oil Savings?

The nationwide coronavirus-led lockdown in India imposed on Mar 25 is the world’s biggest and thus is sure to cause immense economic loss. Having reflected on the fallout, the International Monetary Fund (IMF) has lowered India’s growth forecast for FY21 in its World Economic Outlook (WEO) report from 5.8%, projected in January, to 1.9%. The 'Great Lockdown' as termed by the IMF estimates the total loss to global GDP over 2020 and 2021 at $9 trillion.

While the global economy will slip into the worst recession (a 3% contraction), India and China are likely to record growth. The governor of the Reserve Bank of India (RBI) said the IMF’s projection of 1.9% GDP growth for India is the highest among G20 nations, while the country is expected to record a sharp V-shaped recovery to 7.4% in FY22.

Meanwhile, Barclays cut India’s growth projections to zero for CY20 from 2.5% earlier. Also, it has cut India’s growth projection to 0.8% for FY 2020-21 from 3.5% earlier. World Bank expects India’s economy to grow 1.5% to 2.8% in FY 2020-21 which started on Apr 1. "Growth is expected to rebound to 5% in fiscal 2022 (2021-22) as the impact of COVID-19 dissipates, and fiscal and monetary policy support pays off with a lag," per the World Bank.

Central Bank’s Liquidity Injection

In order to save the economy withered by the coronavirus pandemic, India’s central bank has injected funds equaling 3.2% of GDP into the economy since the February 2020 monetary policy meeting. The RBI has also taken some extra measures to guarantee favorable financial conditions.

Moreover, the RBI recently reduced reverse repo rate by 25 basis points and Targeted Long-Term Repo Operations (TLTRO) 2.0 of Rupees 500 billion to ensure that small and mid-sized corporates, including non-banking financial companies (NBFCs) and micro finance institutions (MFIs) have enough access to liquidity.

Oil Price Slump a Positive

India, which hosts 1.3 billion people, is the world’s third-largest oil consumer and imports about 80% of its oil requirements. Hence, having taken advantage of the prevailing damn cheap oil prices, the country is stockpiling on the liquid commodity in sync with the strategic petroleum reserves (SPRs) (read: Winning ETF Strategies to Counter Epic Oil Rout).

In March, the Confederation of Indian Industry indicated that the country would save a solid $45 billion on oil imports next financial year. Now, since the pricing crash has aggravated, the favorable impact on India’s foreign currency reserves should be more pronounced.

India runs a current account deficit and so savings on oil import bill willhelp the government to fight the coronavirus-led economic fallout. Moreover, severe restrictions on transportation due to the lockdown will lower the consumption of oil.

The India government has a history of raising excise duties and taxes on auto fuels whenever there is a sharp drop in global oil prices. This enhances the government’s own revenue collections while end-users’ fuel costs remain stable. The process helps the India government battle a fiscal deficit problem. The most recent duty hike announced before the COVID-19 lockdown is likely to inject rupees 430 billion into fiscal 2020-21.

India ETFs in Focus

In the past month, India ETFs gained overall with VanEck Vectors India Small-Cap Index ETF SCIF adding the most (up about 14%), followed by Invesco India ETF PIN (up 10.19%) and First Trust India NIFTY 50 Equal Weight ETF NFTY (up 9.4%). Investors with a strong stomach for risks may thus consider these ETFs (see all Asia-Pacific (Emerging) ETFs here).

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VanEck Vectors India Small-Cap Index ETF (SCIF): ETF Research Reports

Invesco India ETF (PIN): ETF Research Reports

First Trust India NIFTY 50 Equal Weight ETF (NFTY): ETF Research Reports

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