India ETFs In Focus As Retail Inflation Touches 17-Year High

India’s retail inflation touched a 17-year high in December owing to rising food and crude prices. Moreover, lower base effect also contributed to the gains in consumer prices. “Inflation has quickened because of a low base effect,” Richa Gupta, senior economist at Deloitte India told Livemint.

Into the Headlines

Consumer prices grew 5.21% year over year in December compared with 4.88% in November and above the central bank’s 4% target, per the Ministry of Statistics. The primary driver for retail inflation was food prices. Consumer food prices grew 4.96% year over year in December compared with 4.42% in the prior month. Moreover, housing inflation also increased to 8.25% in December compared with 7.36% in the prior month.

Adding to the agony, oil prices gained and Brent crossed the $70 mark for the first time in three years, owing to falling U.S. stockpiles and geopolitical risks. This poses serious worries to prime minister Narendra Modi, ahead of the last full-year budget of his current term on Feb 1.

The Reserve Bank of India (RBI) maintained status quo on interest rates in its last monetary policy meeting in December 2017. However, analysts are expecting that any further changes in the status of the economy and factors driving prices might lead the RBI to change its monetary policy stance and adopt a hawkish tone.

Economic Scenario

Coming to the economic data points, India’s GDP grew 6.3% year over year in the July-September quarter of 2017 compared with a three-year low of 5.7% in the previous quarter. However, Morgan Stanley (NYSE:MS) is very optimistic on the Indian economy going forward, as it published a new research report stating that the Indian economy is expected to grow an average 7.3% between 2020 and 2022.

Given that the union budget is scheduled on Feb 1, investors this time are expecting a populist budget. Modi’s state election victories in 2017 were mostly driven by urban voter population. “India is one of the fastest growing economies in the world and the growth is benefiting people in different sectors… maximum population is dependent on agri sector and unless the gains are clear and evident, the (economic) growth is not justifiable and equitable,” per a Livemint article citing a statement by Finance Minister Arun Jaitley.

Let us now discuss a few ETFs focused on providing exposure to the emerging market nation (see all Asia-Pacific Emerging ETFs here).

iShares MSCI India ETF INDA

This fund provides exposure to large and mid-sized Indian equities.

It has AUM of $5.7 billion and charges a fee of 68 basis points a year. Financials, Computer-Software and Consumer Discretionary are the top three sectors of the fund, with 22.3%, 13.1% and 12.7% allocation, respectively (as of Jan 12, 2018). Housing Development Finance Co, Reliance Industries Ltd and Infosys Ltd are the top three holdings of the fund, with 8.6%, 8.0% and 6.1% allocation, respectively (as of Jan 12, 2018). The fund has returned 35.8% in a year. INDA has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.

WisdomTree India Earnings Fund (V:EPI)

This fund provides exposure to Indian equities in multiple capitalization segments.

It has AUM of $1.8 billion and charges a fee of 84 basis points a year. Financials, Energy and Information Technology are the top three sectors of the fund, with 22.9%, 18.9% and 16.9% allocation, respectively (as of Jan 12, 2018). Reliance Industries Ltd, Infosys Ltd and Housing Development Finance Co are the top three holdings of the fund, with 8.9%, 7.4% and 5.8% allocation, respectively (as of Jan 12, 2017). The fund has returned 38.7% in a year. EPI has a Zacks ETF Rank #1 with a Medium risk outlook.

iShares India 50 ETF (JK:INDY)

This fund provides exposure to large-cap Indian equities.

It has AUM of $1.2 billion and charges a fee of 93 basis points a year. Banks, Computer-Software and Refineries/Marketing are the top three sectors of the fund, with 26.1%, 10.8% and 10.6% allocation, respectively (as of Jan 12, 2018). Reliance Industries Ltd, Housing Development Finance Co and ITC Ltd are the top three holdings of the fund, with 7.9%, 6.8% and 5.5% allocation, respectively (as of Jan 12, 2018). The fund has returned 33.6% in a year. INDY has a Zacks ETF Rank #1 with a Medium risk outlook.

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