Looking For India Exposure? Try These ETFs

India’s manufacturing sector ended 2017 on a strong note. Manufacturing activity in India touched a five-year high in December 2017, owing to a surge in new orders and production.

Inside the Headlines

The Nikkei India Manufacturing Purchasing Managers' Index (PMI) increased to 54.7 in December compared with 52.6 in November. This reflects growth in all three monitored categories — consumer, intermediate and investment. A reading above 50 indicates expansion.

Coming to the factors driving growth in the sector, new orders index, which acts a proxy for domestic demand, hit a record high. The new orders sub-index increased to 56.8 in December, the highest since October 2016. Moreover, output surged to the highest level since December 2012, the survey revealed.

"India's goods-producing economy advanced on its recovery path, with operating conditions improving at the strongest pace since December 2012," said Aashna Dodhia, an economist at IHS Markit.

Economic Scenario

Prime minister Narendra Modi secured key election wins in two states, Gujarat and Himachal Pradesh, on Dec 18, 2017. This has led to an increase in optimism about the health of the economy. Moreover, the recent victories are a positive for the ruling party, as it has given a boost to their confidence ahead of the re-election bid in the 2019 primary 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 (read: India ETFs in Focus as GDP Rebounds).

From a monetary policy perspective, the Reserve Bank of India (RBI) kept the interest rate unchanged at 6% in its December monetary policy meeting, owing to fears of rising inflation. On a year-over-year basis, retail inflation increased to 4.88% in November compared with 3.58% in October, breaching India’s central bank’s 4% target. However, analysts are expecting the RBI to maintain a neutral stance for the rest of this fiscal.

Coming to the price front, although the Indian economy seems to be rebounding from the setbacks faced by demonetization and GST, cost pressures persist. “On the price front, July’s Goods and Services Tax continued to lead to greater raw material costs, with input cost inflation accelerating to the sharpest since April,” said Dodhia.

Moving on to the market moving factors, investors will be closely eyeing next quarter’s earnings and the budget in early 2018.

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 $5.5 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 22.0%, 13.0% and 12.9% allocation, respectively (as of Dec 29, 2017). Housing Development Finance Co, Reliance Industries Ltd and Infosys Ltd are the top three holdings of the fund, with 8.5%, 7.9% and 6.0% allocation, respectively (as of Dec 29, 2017). The fund has returned 36.3% 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%, 18.8% and 16.6% allocation, respectively (as of Jan 2, 2018). Reliance Industries Ltd, Infosys Ltd and Housing Development Finance Co are the top three holdings of the fund, with 8.9%, 7.3% and 5.8% allocation, respectively (as of Jan 2, 2017). The fund has returned 40.1% 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, Computer-Software and Refineries/Marketing are the top three sectors of the fund, with 26.3%, 10.6% and 10.5% allocation, respectively (as of Dec 29, 2017). 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 Dec 29, 2017). The fund has returned 36.3% in a year. INDY has a Zacks ETF Rank #1 with a Medium risk outlook.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>