Elections Fuel 5 Rallying India ETFs

May 13, 2014

New political and central banking figures are fueling a resurgence in India-focused equity ETFs.

India-focused ETFs are rising on investor hopes that elections this week will yield a more business-friendly government. And with a central banker already in place to guide the market to new heights, investors have much to look forward to in India, which recently displaced Japan as the world’s third- largest economy.

Investors such as David Kotok, chairman and chief investment officer of Cumberland Advisors, are banking on prime minister hopeful Narendra Modi to win this week’s elections. Exit polls suggest Modi, who is thought of as an economic and social reformist, likely has the votes necessary to put together a coalition government.

“We own India, and we have an overweight position in India. We’re happy with the position, and we would anticipate holding it,” Kotok said, in a recent interview with ETF.com’s Alpha Think Tank.

Also, the Indian rupee, which slid 11 percent in 2013, has gained 3.3 percent against the dollar year-to-date, thanks to the Reserve Bank of India’s new governor Raghuram Rajan, who has helped stabilize the rupee since taking office.

“Last September India got a new central banker and he’s made the eradication of inflation his alpha and his omega,” said Tyler Mordy, president of Toronto-based Hahn Investment Stewards. “I would say he’s the most credible central banker in the world right now.”

In the weeks leading up to the election, India-focused ETFs, including the $725 million iShares MSCI India ETF (INDA | C-96), the $190 million Market Vectors India Small-Cap Index ETF (SCIF | D-48) and the $515 million iShares India 50 ETF (INDY | D-75) have risen, bringing their year-to-date returns to 13 percent, 23 percent and 17 percent, respectively.



In turn, investors have plowed fresh assets into these ETFs, with year-to-date flows into each totaling $161 million (INDA), $73 million (SCIF) and $12 million (INDY), according to data compiled by ETF.com Analytics.

However, not all India-focused ETFs felt the same love from investors. The $1.0 billion Wisdom Tree India Earnings Fund (EPI | C-81), which tracks a total market index of Indian companies selected and weighted by earnings, saw outflows of $63 million, year-to-date.

But it has returned 18 percent in the same period, putting it in the center of the pack among competitors.

Also, the $392 million PowerShares India Portfolio (PIN | D-66), a large-cap focused ETF, has gained 13 percent year-to-date versus a 1.3 percent gain for the $36 billion iShares MSCI Emerging Markets ETF (EEM | B-100) and a 2.4 percent gain for the Vanguard FTSE Emerging Markets fund (VWO | C-90).

Overall, Mordy says India is definitely headed in the right direction under its new leadership. “The stock market valuations are not stretched; the structural reform—we’ve got clear policy settings; an improving current account deficit; and a political situation that is definitely moving in a pro-growth direction.”


Charts courtesy of StockCharts.com


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