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A six-member monetary policy committee (MPC) headed by the governor of Reserve Bank of India, (RBI) Urjit Patel decided to cut the repo rate in order to boost the Indian economy in the days ahead. This was the first time that the newly formed MPC decided on the monetary policy, which also issued a favorable inflation and economic growth outlook.
RBI Cuts Rate, Provides Favorable Inflation Outlook
All the members of MPC unanimously decided to reduce the repo rate by a quarter basis point to 6.25%, its lowest level since Nov 2010. RBI stated: "The accommodative stance of monetary policy and comfortable liquidity conditions should support a revival of credit to the productive sectors.” Improving inflation rate was one of the reasons that drove the rate cut. The committee expects the same to decline further in the near future (read: Indian Economy Steps Up: ETFs to Buy).
Recently released government data shows that year-on-year CPI inflation rate declined from 6% in July to 5% in August, which is speculated to be the result of normal level of rainfall during the monsoon season. The rate was within the targeted range of 2-6%. It is expected to improve further in the upcoming quarters, according to RBI. The inflation rate is currently anticipated to decline significantly to 4.7% by the fourth quarter of fiscal year 2016-17 and is expected to decline further to 4.4% in the second quarter of fiscal 2017-18. RBI stated: "The Committee expects that the strong improvement in sowing, along with supply management measures, will improve the food inflation outlook.”
Economic Outlook Also Remains Positive
Despite slowing down from the previous quarter’s growth rate of 7.9%, the Indian economy continues to be one of the fastest-expanding economies in the world, registering growth of 7.1% during the March-June quarter. Moreover, the growth outlook for the upcoming quarters also looks impressive. In its statement, RBI said: "The momentum of growth is expected to quicken with a normal monsoon raising agricultural growth and rural demand, as well as by the stimulus to the urban consumption spending from the pay commission’s award” (read: Can India ETFs Continue to Shine After Rajan Exit?)
Separately, the World Bank recently said that the economy will continue to grow at an encouraging pace this year and the next. It stated that the economy will expand at rates of 7.6% and 7.7% in 2016 and 2017, respectively. The bank highlighted “expectations of a rebound in agriculture, civil service pay reforms supporting consumption, increasingly positive contributions from exports and a recovery of private investment in the medium term” as the main reason behind the encouraging outlook.
4 India ETFs to Buy
We have highlighted four ETFs that have significant exposure to securities of Indian companies and are poised to gain from this favorable backdrop. These funds also carry either a Zacks ETF Rank #1 (Strong Buy) or #2 (Buy), which indicates their potential to provide healthy returns in the days ahead (read: Is it Finally Time to Invest in India?).
This ETF follows the MSCI India Total Return Index and charges 68 bps in fees per year from investors. Holding 74 stocks in its basket, it has more than 47% of its assets allocated to the top ten holdings. The product is slightly tilted toward the financial sector which has a 21% share while software, consumer discretionary, consumer staples and health care round off the top five. INDA is the largest and most popular ETF in this space with an AUM of over $4.1 billion and an average trading volume of nearly 2 million shares a day. This fund has a Zacks ETF Rank #1 with a Medium risk outlook. It returned 6.8% and 8.4% over the past three-month and year-to-date time frame, respectively.
This product tracks the WisdomTree India Earnings Index, holding 251 profitable companies. It uses an earnings-weighted methodology. Reliance Industries and Infosys occupy the top two positions with a combined 17.3% of the assets while other firms hold less than 6.2% share. The fund is heavy on financials with nearly one-fourth share, while energy and information technology also get double-digit allocation in the basket. The fund has amassed nearly $1.4 billion and trades in volume of more than 3.6 million shares a day. It has an expense ratio of 0.83%. This ETF has a Zacks ETF Rank #2 with a Medium risk outlook. It gained 8.4% and 10.7% over the past three-month and year-to-date time frame, respectively.
This ETF provides exposure to the biggest 54 Indian stocks by tracking the Nifty 50 Index. It is pretty well spread out across components with none of the securities holding more than 7.1% of the assets. With respect to sector holdings, banks takes the top spot at 24.3%, closely followed by software (12.9%), passenger/utility vehicles (9%) and housing finance (7.1%). The product has managed assets worth $759.9 million and trades in good volume of nearly 157,000 million shares a day. It is a high cost choice in the space, charging 94 bps. This fund has a Zacks ETF Rank #2 with a Medium risk outlook. It returned 6.7% and 10.9% over the past three-month and year-to-date time frame, respectively (read: Will Rajan's Departure Cast a Pall Over India ETFs?).
This fund offers exposure to a basket of 50 stocks selected from the universe of the largest companies listed on two major Indian exchanges by tracking Indus India Index. It has more than half of its assets allocated to the top ten holdings. From a sector look, the fund is tilted toward energy, accounting for over 23% share, followed by financials (18.8%) and IT (15.8%). The fund has amassed $420.4 million in its asset base and trades in solid volume of around 880,000 shares a day on average. It charges a higher expense ratio of 82 bps and has a Zacks ETF Rank #2 with a Medium risk outlook. This ETF gained 7.5% and 7.8% over the past three-month and year-to-date time frame, respectively.
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4 India ETFs to Buy as RBI Cuts Rate
A six-member monetary policy committee (MPC) headed by the governor of Reserve Bank of India, (RBI) Urjit Patel decided to cut the repo rate in order to boost the Indian economy in the days ahead. This was the first time that the newly formed MPC decided on the monetary policy, which also issued a favorable inflation and economic growth outlook.
RBI Cuts Rate, Provides Favorable Inflation Outlook
All the members of MPC unanimously decided to reduce the repo rate by a quarter basis point to 6.25%, its lowest level since Nov 2010. RBI stated: "The accommodative stance of monetary policy and comfortable liquidity conditions should support a revival of credit to the productive sectors.” Improving inflation rate was one of the reasons that drove the rate cut. The committee expects the same to decline further in the near future (read: Indian Economy Steps Up: ETFs to Buy).
Recently released government data shows that year-on-year CPI inflation rate declined from 6% in July to 5% in August, which is speculated to be the result of normal level of rainfall during the monsoon season. The rate was within the targeted range of 2-6%. It is expected to improve further in the upcoming quarters, according to RBI. The inflation rate is currently anticipated to decline significantly to 4.7% by the fourth quarter of fiscal year 2016-17 and is expected to decline further to 4.4% in the second quarter of fiscal 2017-18. RBI stated: "The Committee expects that the strong improvement in sowing, along with supply management measures, will improve the food inflation outlook.”
Economic Outlook Also Remains Positive
Despite slowing down from the previous quarter’s growth rate of 7.9%, the Indian economy continues to be one of the fastest-expanding economies in the world, registering growth of 7.1% during the March-June quarter. Moreover, the growth outlook for the upcoming quarters also looks impressive. In its statement, RBI said: "The momentum of growth is expected to quicken with a normal monsoon raising agricultural growth and rural demand, as well as by the stimulus to the urban consumption spending from the pay commission’s award” (read: Can India ETFs Continue to Shine After Rajan Exit?)
Separately, the World Bank recently said that the economy will continue to grow at an encouraging pace this year and the next. It stated that the economy will expand at rates of 7.6% and 7.7% in 2016 and 2017, respectively. The bank highlighted “expectations of a rebound in agriculture, civil service pay reforms supporting consumption, increasingly positive contributions from exports and a recovery of private investment in the medium term” as the main reason behind the encouraging outlook.
4 India ETFs to Buy
We have highlighted four ETFs that have significant exposure to securities of Indian companies and are poised to gain from this favorable backdrop. These funds also carry either a Zacks ETF Rank #1 (Strong Buy) or #2 (Buy), which indicates their potential to provide healthy returns in the days ahead (read: Is it Finally Time to Invest in India?).
iShares MSCI India (INDA - Free Report)
This ETF follows the MSCI India Total Return Index and charges 68 bps in fees per year from investors. Holding 74 stocks in its basket, it has more than 47% of its assets allocated to the top ten holdings. The product is slightly tilted toward the financial sector which has a 21% share while software, consumer discretionary, consumer staples and health care round off the top five. INDA is the largest and most popular ETF in this space with an AUM of over $4.1 billion and an average trading volume of nearly 2 million shares a day. This fund has a Zacks ETF Rank #1 with a Medium risk outlook. It returned 6.8% and 8.4% over the past three-month and year-to-date time frame, respectively.
WisdomTree India Earnings ETF (EPI - Free Report)
This product tracks the WisdomTree India Earnings Index, holding 251 profitable companies. It uses an earnings-weighted methodology. Reliance Industries and Infosys occupy the top two positions with a combined 17.3% of the assets while other firms hold less than 6.2% share. The fund is heavy on financials with nearly one-fourth share, while energy and information technology also get double-digit allocation in the basket. The fund has amassed nearly $1.4 billion and trades in volume of more than 3.6 million shares a day. It has an expense ratio of 0.83%. This ETF has a Zacks ETF Rank #2 with a Medium risk outlook. It gained 8.4% and 10.7% over the past three-month and year-to-date time frame, respectively.
iShares India 50 (INDY - Free Report)
This ETF provides exposure to the biggest 54 Indian stocks by tracking the Nifty 50 Index. It is pretty well spread out across components with none of the securities holding more than 7.1% of the assets. With respect to sector holdings, banks takes the top spot at 24.3%, closely followed by software (12.9%), passenger/utility vehicles (9%) and housing finance (7.1%). The product has managed assets worth $759.9 million and trades in good volume of nearly 157,000 million shares a day. It is a high cost choice in the space, charging 94 bps. This fund has a Zacks ETF Rank #2 with a Medium risk outlook. It returned 6.7% and 10.9% over the past three-month and year-to-date time frame, respectively (read: Will Rajan's Departure Cast a Pall Over India ETFs?).
PowerShares India ETF (PIN - Free Report)
This fund offers exposure to a basket of 50 stocks selected from the universe of the largest companies listed on two major Indian exchanges by tracking Indus India Index. It has more than half of its assets allocated to the top ten holdings. From a sector look, the fund is tilted toward energy, accounting for over 23% share, followed by financials (18.8%) and IT (15.8%). The fund has amassed $420.4 million in its asset base and trades in solid volume of around 880,000 shares a day on average. It charges a higher expense ratio of 82 bps and has a Zacks ETF Rank #2 with a Medium risk outlook. This ETF gained 7.5% and 7.8% over the past three-month and year-to-date time frame, respectively.
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Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>