India Stocks Rally To Record High: ETFs In Focus

Indian stocks are rallying to record highs despite rising crude prices and slowing GDP growth. Investors are optimistic about quarterly earnings and government’s fiscal budget in February. Sensex hit an all-time high of 34,352.79, while Nifty crossed the 10,600 mark for the first time, closing at 10,623.60 on Jan 8, 2018 (read: 8 ETF Predictions for 2018).

Economic Scenario

Prime minister Narendra Modi’s party emerged victorious in the elections in two states, Gujarat and Himachal Pradesh, on Dec 18, 2017. This has increased optimism among investors pertaining to the market’s performance in 2018. Moreover, eight Indian states go to the polls this year. The recent victories thus are a positive for the ruling party, as it has given a boost to their confidence ahead of the state elections and their re-election bid in the 2019 general elections.

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, the Indian economy is expected to grow at 6.5% in 2017-18 compared with 7.1% in the 2016-17 fiscal, a four-year low, per the first advance estimates of GDP growth released by the Central Statistics Office (read: Looking For India Exposure? Try These ETFs).

However, the weakness in GDP doesn’t seem to shun foreign institutional investors (FII). FIIs seem to be very optimistic about Indian markets at the moment. Per a Financial Express article, FIIs have invested around Rs 1,700 crore in Indian equities in the first five trading days of 2018. This compares with a net sell-off of around Rs 67,500 crore in the August-December 2017 period.

What’s Driving the Optimism?

Wall Street is rallying to record highs on strong U.S. economic fundamentals. Indian stocks are greatly impacted by events at Wall Street and the first week of trading in the New Year has been positive for the U.S. markets.

As far as the earnings of Indian companies are concerned, investor sentiment across the street is positive for the October-December quarter of 2017. However, we can expect crude prices and rupee’s movement against the dollar to impact investor sentiment going further into 2018.

Moving on to the union budget scheduled on Feb 1, investors are expecting a populist budget this time around. Modi’s state election victories in 2017 were mostly driven by urban voter population. "The next budget will focus on farmers, rural jobs and infrastructure while making all attempts to follow a fiscal prudence path," per an Economic Times article citing a statement by a senior finance ministry official.

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 $5.6 billion and charges a fee of 68 basis points a year. Financials, Consumer Discretionary and Computer-Software are the top three sectors of the fund, with 22.3%, 12.8% and 12.6% allocation, respectively (as of Jan 5, 2018). Housing Development Finance Co, Reliance Industries Ltd and Infosys Ltd are the top three holdings of the fund, with 8.5%, 7.8% and 5.8% allocation, respectively (as of Jan 5, 2018). The fund has returned 38.0% 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 23.0%, 18.7% and 16.5% allocation, respectively (as of Jan 8, 2018). Reliance Industries Ltd, Infosys Ltd and Housing Development Finance Co are the top three holdings of the fund, with 8.8%, 7.1% and 5.7% allocation, respectively (as of Jan 8, 2017). The fund has returned 41.1% 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, Refineries/Marketing and Computer-Software are the top three sectors of the fund, with 26.2%, 10.4% and 10.4% allocation, respectively (as of Jan 5, 2018). Reliance Industries Ltd, Housing Development Finance Co and ITC Ltd are the top three holdings of the fund, with 7.8%, 6.7% and 5.5% allocation, respectively (as of Jan 5, 2018). The fund has returned 36.5% in a year. INDY has a Zacks ETF Rank #1 with a Medium risk outlook.

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