India ETFs In Focus On Modi's State Election Victory

Prime minister Narendra Modi secured key election wins in two states — Gujarat and Himachal Pradesh — on Dec 18. Markets suffered when Modi’s Bhartiya Janta Party (BJP) was lagging its biggest rival, Congress. However, it pared the day’s earlier losses and ended in the green when BJP finally emerged victorious in both the states. Sensex closed 0.4% higher, while the Nifty closed 0.5% higher.

In Gujarat, BJP secured 99 seats compared with Congress’s 77. Of the 182 seats contested, 92 were required for a majority. Moreover, in Himachal Pradesh, BJP secured 44 seats compared with Congress’s 21. Of the 68 seats contested, 35 were required for a majority.

Economic Scenario

India’s GDP grew 6.3% annually in the July-September quarter of 2017 compared with a three-year low of 5.7% in the previous quarter. 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 (read: India ETFs in Focus as GDP Rebounds).

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. However, analysts are expecting the RBI to maintain a neutral stance for the rest of this fiscal. “The scope for any rate cut this fiscal (year) is completely ruled out,” said Sunil Sinha to Reuters, an economist at India Ratings. “I do not see much of change in RBI’s stance in the next six months,” he said (read: India ETFs in Focus as Inflation Rises).

Modi stated that the recent election victories show that the country is ready for reforms. “This is not an ordinary victory. It's special. Some people can't digest BJP victory, don't waste your time on them. Focus on New India by 2022,” says Modi.

What Lies Ahead?

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.

The markets will be closely eyeing next quarter’s earnings and the budget in early 2018. Moreover, developments in President Donald Trump’s tax reform have led to a rally in Asian stocks. The legislation was finalized in a conference report last week and is poised to become law this week and hand Trump his first legislative victory. Analysts predict that the market has not yet priced in the tax reform entirely and there is still scope for further upside.

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 $5.4 billion and charges a fee of 71 basis points a year. Financials, Computer-Software and Consumer Discretionary are the top three sectors of the fund, with 22.5%, 13.2% and 12.8% allocation, respectively (as of Dec 15, 2017). Housing Development Finance Co, Reliance Industries Ltd and Infosys Ltd are the top three holdings of the fund, with 8.8%, 8.1% and 6.4% allocation, respectively (as of Dec 15, 2017). The fund has returned 32.9% in a year and 33.3% year to date (as of Dec 18, 2017). 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 23.2%, 19.3% and 16.7% allocation, respectively (as of Dec 18, 2017). Reliance Industries Ltd, Infosys Ltd and Housing Development Finance Co are the top three holdings of the fund, with 9.1%, 7.4% and 5.9% allocation, respectively (as of Dec 18, 2017). The fund has returned 34.6% in a year and 35.0% year to date (as of Dec 18, 2017). 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 26.7%, 10.6% and 10.5% allocation, respectively (as of Dec 15, 2017). Reliance Industries Ltd, Housing Development Finance Co and ITC Ltd are the top three holdings of the fund, with 7.6%, 6.9% and 5.7% allocation, respectively (as of Dec 15, 2017). The fund has returned 33.4% in a year and 34.0% year to date (as of Dec 18, 2017). INDY has a Zacks ETF Rank #1 with a Medium risk outlook.

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