No One Chasing India ETFs Rally

Tax cuts pushed these equity ETFs sharply higher, but creations didn’t follow.   

Reviewed by: Cinthia Murphy
Edited by: Cinthia Murphy

India ETFs have been surging, rallying as much as 8% in five days on the heels of an unprecedented corporate tax rate cut many say could boost earnings sooner rather than later.

However, investor enthusiasm remains muted at best.

The biggest India ETFs, the $5 billion iShares MSCI India ETF (INDA), and the $1.2 billion WisdomTree India Earnings Fund (EPI), each gained roughly 7% last week. The iShares India 50 ETF (INDY), which has $744 million in total assets, jumped 8.3%.



No Asset Inflows

While the one-week performance charts are impressive, assets have yet to follow the market uptick. India ETFs have seen negligible-to-zero net creations in the past week despite their performance. No one seems to be chasing those gains.

Year to date, that lack of appetite for Indian equities is evident. INDA has gathered $325 million in net creations so far in 2019, but it’s more the exception than the rule. Others, including EPI and INDY, remain net asset losers year to date, and understandably so.

CNBC reported that India’s GDP growth has now declined for six straight quarters, sitting at multiyear lows. This is an emerging market that’s been struggling to expand.

Looking to spur economic growth, India’s government cut tax rates on most Indian corporations from 35% to 25% this past week. But if asset flows offer any clues about how ETF investors feel, it seems they’re waiting for confirmation that lower taxes will in fact lead to better growth.

So far this year, India equity ETFs have largely underperformed broader emerging market ETFs such as the iShares Core MSCI Emerging Markets ETF (IEMG). Some of them—EPI—are still in the red in 2019.

Charts courtesy of
Trade War Could Help India

“Despite some recent transient weakness, we think India is very well positioned to continue its impressive growth,” wrote Gaurav Sinha, associate director of asset allocation at WisdomTree, in a blog. “Several recent measures to boost the economy point to a political willingness to support India’s growth.”

“Beyond domestic reasons, the tax cut was made to help incentivize global manufacturing companies to hedge against the effects of the volatile U.S.-China trade dispute,” he added, noting that many companies are looking to relocate from China. “We believe reforms and growth are going to be the story ahead.”

Sinha, whose firm runs EPI—the second largest India ETF—could be talking his book. But he’s not alone calling for India’s growth story to pick up.

J.P. Morgan’s Head of India Equity Research Bharat Iyer told Bloomberg that the country’s economic and corporate earnings growth “has bottomed out.”

“Emerging market investors are running a neutral position in India vis-a-vis the benchmark,” he told Bloomberg. “This neutral position has been despite earnings growth being underwhelming for the last four to five years.”

“This just shows how well they appreciate a structural opportunity,” he noted. “But for them to go overweight, we’ll have to offer a more robust earnings cycle. That should take time.”

India represents about 9-10% of broader emerging market ETFs such as IEMG and the Vanguard FTSE Emerging Markets ETF (VWO)—it’s the fourth largest country allocation in these portfolios.

Contact Cinthia Murphy at [email protected]

Cinthia Murphy is head of digital experience, advocating for the user in all that does. She previously served as managing editor and writer for, specializing in ETF content and multimedia. Cinthia’s experience includes time at Dow Jones and former BridgeNews, covering commodity futures markets in Chicago and Brazil equities in Sao Paulo. She has a bachelor’s degree in journalism from the University of Missouri-Columbia.