What Lies Ahead For India ETFs?

Indian stocks were hit by the double whammy of demonetization and Donald Trump’s victory last month. India ETFs like iShares India 50 ETF (JK:INDY) , iShares MSCI India ETF INDA, WisdomTree India Earnings Fund (TO:EPI) and PowerShares India Portfolio ETF PIN were down 3.7%, 3%, 1.5% and 0.8% respectively in the last one month as of December 7, 2016 (read: India ETFs Tangled Between Note Demonetization & Trump Win)

Small-cap stocks are generally more susceptible to changes in domestic economy. Some of the ETFs tracking small-cap companies based in India such as EGShares India Small Cap ETF (LON:SCIN) , VanEck Vectors India Small-Cap Index ETF SCIF and iShares MSCI India Small-Cap ETF (LON:SMIN) were down 7.8%, 6.5% and 5.2%, respectively in the abovementioned timeframe.

In order to tackle tax evasion, illegal money, fake currency and corruption, high-denomination bank notes of INR500 and INR1000 were withdrawn by Indian Prime Minister Narendra Modi. The step is expected to have a deflationary impact on inflation and remove unaccounted and untaxed money, thus making it easier for RBI to meet its medium-term inflation target of 4%. Analyst believe that this move could slow down India’s GDP growth by more than 1%. In fact, Goldman Sachs (NYSE:GS) now expects the Indian economy to grow at only 6.3% this fiscal year (ending next March) versus 7.5% previously. Even, the country’s central bank Reserve Bank of India (RBI) has cut India’s economic growth this fiscal year by 50 basis points from 7.6% to 7.1% (read: India ETFs in Focus on Rate Cut Hopes).

Recently, RBI drew a lot of flak by holding the rates constants after the December meeting. India’s central bank kept its benchmark repo rate on hold at 6.25%. This took the markets by surprise as a rate cut was largely expected, considering retail inflation eased for a third straight month in October. As per government data, consumer prices were up around 4.2% on an annual basis. This is the slowest rise in the last 14 months and was in line with the median consensus in a Reuters' poll of economists. As per analysts polled by Bloomberg, 36 out of 44 analysts were expecting 25 to 50 basis points.

Meanwhile, Donald Trump’s win in the U.S. is likely to cause uncertainty in the coming days in a few foreign economies. India might also be at the receiving end of Trump’s restrictive policies, particularly related to immigration and outsourcing (read: Foreign ETFs to Win or Lose on Trump Victory).

Trump plans to levy higher taxes on companies for outsourcing jobs to places like India. As per India’s central bank, software services constituted $50 billion worth of exports to North America. As a result uncertainty looms large for India (see all Asia-Pacific Emerging ETFs here).

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ISHARS-SP INDIA (INDY): ETF Research Reports

ISHARS-M IND SC (SMIN): ETF Research Reports

ISHARS-M INDIA (INDA): ETF Research Reports

VANECK-INDIA SC (SCIF): ETF Research Reports

PWRSH-INDIA POR (PIN): ETF Research Reports

WISDMTR-IN EARN (EPI): ETF Research Reports

COL-INDIA SC (SCIN): ETF Research Reports

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