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Will Indian ETFs Shine Under the Trump Presidency?
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Is the ball set to roll in favor of Indian ETFs as the nation’s tie with the U.S. mature under President Donald Trump? The answer to this is possibly yeas. The relationship between the two countries has witnessed considerable ups and downs over last six decades. However, a tightening of relations with India, which was started during the Barack Obama regime, is likely to be cemented during Trump government.
Trump has made his stance against Mexico and China and some other countries quite clear during his election rallies, but one country that was able to draw his respect is India (read:India ETFs to Watch Post Trump Victory). Following the Presidential inaugurations, India’s Prime Minister Narendra Modi is one of the first leaders Trump has discussed economic and defense plans. Several policy watchers believe thatIndia is likely to become U.S.’s most important ally to counter China.
Will China’s Loss be India’s Gain?
Trump had been quite forthcoming about a tougher policy on China. Many U.S. strategic thinkers see the rise of India as a natural balancer to China as beneficial to the U.S. The US-India relationship has been strengthened in recent yearsespecially on security and defense issues. Cooperation on defense trade and technology has grown to the benefit of both countries under the Defense Technology and Trade Initiative.
There are some avenues for better prospects, particularly in the real estate and pharmaceutical sectors. According to some industry experts, Trump's proposal to lift entry barriers for drug-makers that offer safe, reliable and cheaper products bodes well for Indian companies. Trump has also identified China as a potential rival of the U.S., mostly in the context of trade. It remains to be seen if India can become a better trade partner for the U.S. under Trump’s administration.
At this stage, we want to focus on some of the latest developments in the Indian economy:
Demonetization
The event that put the Indian economy on global headlines was currency demonetization in early November, when as much as “86% of Indian currency and 12% GDP got stalled overnight.” As per the announcement, the Indian government withdrew high-denomination banknotes – 500 rupee and 1000 rupee – in circulation, as part of a crackdown on illegal money, dealing a heavy blow to the finances of militants targeting India. (read:Are India ETFs in for a Rough 2017 Thanks to Modi?)
The immediate impact will be on inflation as eradication of unaccounted and untaxed money will have a deflationary effect. Some even view the step as an unplanned form of policy tightening, though India has been resorting to rate cuts in recent times to boost growth.
Long-term Gain
While the cash ban is expected to be a drag on the Indian economy in the near term (say for at least two quarters), the long-term outlook is quite compelling. This is especially true, as the move would help the economy to grow faster in the next fiscal year, put an end to the country's shadow economy, increase tax revenues, and promote the use of bank accounts and digital transactions. According to Heather Brilliant of Morningstar Australasia, “It could certainly create bumps in the short term but over time, we expect it to be a positive for areas of the economy like e-commerce”.
India’s economy will likely expand 7.5% as per the Deutsche Bank and 8.6% according to Goldman in the financial year through March 2018. As per the Economic and Social Survey for Asia and the Pacific 2016 report of the United Nations, the Indian economy is set to continue growing faster than China with a growth rate of 7.6% in both fiscal years 2016–17 and 2017–18. If this wasn’t enough, Modi’s government expects the economy to grow five folds by 2040 buoyed by strong progress in manufacturing, transport and civil aviation. (read:Are India ETFs Feeling the Pinch of the Cash Ban?)
Stable Monetary Policy
Today, the Reserve Bank of India, (RBI) left interest rates unchanged. Earlier in October 2016, a six-member monetary policy committee (MPC) headed by the governor Urjit Patel decided to cut the repo rate in order to boost India’s economy in the days ahead. All the members of MPC unanimously voted in favor of the rate cut by 25 basis points to 6.25%, its lowest level since November 2010.
Recently, RBI drew a lot of flak by holding the rates constant 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. (read:What Lies Ahead for India ETFs?)
Other Policy Reforms
The government of India plans to boost infrastructure and open up industries such as railways and defense to foreign investment. The latest Economic Surveyissued by the government has pointed toward the need to further privatize civil aviation, banking and fertilizer sectors.The survey noted that over the past two years, the government has made considerable progress toward reducing subsidies, especially related to petroleum products.
India has shown tremendous resilience in times of global uncertainty. A slew of economic reforms, improving current account deficit, a rebound in agriculture, a recovery in private investment, introduction of the Goods and Services Tax (GST), and a stable monetary policy will fuel economic growth and drive stocks higher.
ETFs in Focus
Below we highlight a few India ETFs which we believe will perform reasonably well in the days ahead:
iShares MSCI India Small-Cap ETF (SMIN - Free Report) : This ETF seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI India Small Cap Index. The fund manages an asset size of over $83.93 million and an average daily trading volume of 33,817 shares. The fund charges an expense ratio of 74 bps (basis points) a year. SMIN is up 15.12% year to date (as of February 6, 2017).
iShares India 50 ETF(INDY - Free Report) : This fund seeks to track the investment results of CNX Nifty Index composed of 50 of the largest Indian equities. The ETF manages assets worth $771.24 million and an average daily trading volume of 150,865 shares. The fund charges an expense ratio of 94 bps a year. INDY rallied 9.80% year to date (as of February 6, 2017).
PowerShares India Portfolio ETF(PIN - Free Report) : This ETF is based on the Indus India Index. It invests at least 90% of its assets in securities comprising the Index and ADRs based on the securities in the Index which replicates the Indian equity markets as a whole. The fund manages an asset size valued nearly $351.40 million and an average daily trading volume of 879,581 shares. The fund charges an expense ratio of 82 bps a year. The fund gained 9.18% year to date (as of February 6, 2017).
WisdomTree India Earnings Fund(EPI - Free Report) : This fund seeks investment results that correspond to the price and yield performance of the WisdomTree India Earnings Index, before fees and expenses. The ETF manages assets worth $1,432.08 million and an average daily trading volume of 3,407,993 shares. The fund charges an expense ratio of 84 bps a year. EPI has rallied 9.01% year to date (as of February 6, 2017).
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Will Indian ETFs Shine Under the Trump Presidency?
Is the ball set to roll in favor of Indian ETFs as the nation’s tie with the U.S. mature under President Donald Trump? The answer to this is possibly yeas. The relationship between the two countries has witnessed considerable ups and downs over last six decades. However, a tightening of relations with India, which was started during the Barack Obama regime, is likely to be cemented during Trump government.
Trump has made his stance against Mexico and China and some other countries quite clear during his election rallies, but one country that was able to draw his respect is India (read:India ETFs to Watch Post Trump Victory). Following the Presidential inaugurations, India’s Prime Minister Narendra Modi is one of the first leaders Trump has discussed economic and defense plans. Several policy watchers believe thatIndia is likely to become U.S.’s most important ally to counter China.
Will China’s Loss be India’s Gain?
Trump had been quite forthcoming about a tougher policy on China. Many U.S. strategic thinkers see the rise of India as a natural balancer to China as beneficial to the U.S. The US-India relationship has been strengthened in recent yearsespecially on security and defense issues. Cooperation on defense trade and technology has grown to the benefit of both countries under the Defense Technology and Trade Initiative.
There are some avenues for better prospects, particularly in the real estate and pharmaceutical sectors. According to some industry experts, Trump's proposal to lift entry barriers for drug-makers that offer safe, reliable and cheaper products bodes well for Indian companies. Trump has also identified China as a potential rival of the U.S., mostly in the context of trade. It remains to be seen if India can become a better trade partner for the U.S. under Trump’s administration.
At this stage, we want to focus on some of the latest developments in the Indian economy:
Demonetization
The event that put the Indian economy on global headlines was currency demonetization in early November, when as much as “86% of Indian currency and 12% GDP got stalled overnight.” As per the announcement, the Indian government withdrew high-denomination banknotes – 500 rupee and 1000 rupee – in circulation, as part of a crackdown on illegal money, dealing a heavy blow to the finances of militants targeting India. (read:Are India ETFs in for a Rough 2017 Thanks to Modi?)
The immediate impact will be on inflation as eradication of unaccounted and untaxed money will have a deflationary effect. Some even view the step as an unplanned form of policy tightening, though India has been resorting to rate cuts in recent times to boost growth.
Long-term Gain
While the cash ban is expected to be a drag on the Indian economy in the near term (say for at least two quarters), the long-term outlook is quite compelling. This is especially true, as the move would help the economy to grow faster in the next fiscal year, put an end to the country's shadow economy, increase tax revenues, and promote the use of bank accounts and digital transactions. According to Heather Brilliant of Morningstar Australasia, “It could certainly create bumps in the short term but over time, we expect it to be a positive for areas of the economy like e-commerce”.
India’s economy will likely expand 7.5% as per the Deutsche Bank and 8.6% according to Goldman in the financial year through March 2018. As per the Economic and Social Survey for Asia and the Pacific 2016 report of the United Nations, the Indian economy is set to continue growing faster than China with a growth rate of 7.6% in both fiscal years 2016–17 and 2017–18. If this wasn’t enough, Modi’s government expects the economy to grow five folds by 2040 buoyed by strong progress in manufacturing, transport and civil aviation. (read:Are India ETFs Feeling the Pinch of the Cash Ban?)
Stable Monetary Policy
Today, the Reserve Bank of India, (RBI) left interest rates unchanged. Earlier in October 2016, a six-member monetary policy committee (MPC) headed by the governor Urjit Patel decided to cut the repo rate in order to boost India’s economy in the days ahead. All the members of MPC unanimously voted in favor of the rate cut by 25 basis points to 6.25%, its lowest level since November 2010.
Recently, RBI drew a lot of flak by holding the rates constant 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. (read:What Lies Ahead for India ETFs?)
Other Policy Reforms
The government of India plans to boost infrastructure and open up industries such as railways and defense to foreign investment. The latest Economic Surveyissued by the government has pointed toward the need to further privatize civil aviation, banking and fertilizer sectors.The survey noted that over the past two years, the government has made considerable progress toward reducing subsidies, especially related to petroleum products.
India has shown tremendous resilience in times of global uncertainty. A slew of economic reforms, improving current account deficit, a rebound in agriculture, a recovery in private investment, introduction of the Goods and Services Tax (GST), and a stable monetary policy will fuel economic growth and drive stocks higher.
ETFs in Focus
Below we highlight a few India ETFs which we believe will perform reasonably well in the days ahead:
iShares MSCI India Small-Cap ETF (SMIN - Free Report) : This ETF seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI India Small Cap Index. The fund manages an asset size of over $83.93 million and an average daily trading volume of 33,817 shares. The fund charges an expense ratio of 74 bps (basis points) a year. SMIN is up 15.12% year to date (as of February 6, 2017).
iShares India 50 ETF(INDY - Free Report) : This fund seeks to track the investment results of CNX Nifty Index composed of 50 of the largest Indian equities. The ETF manages assets worth $771.24 million and an average daily trading volume of 150,865 shares. The fund charges an expense ratio of 94 bps a year. INDY rallied 9.80% year to date (as of February 6, 2017).
PowerShares India Portfolio ETF(PIN - Free Report) : This ETF is based on the Indus India Index. It invests at least 90% of its assets in securities comprising the Index and ADRs based on the securities in the Index which replicates the Indian equity markets as a whole. The fund manages an asset size valued nearly $351.40 million and an average daily trading volume of 879,581 shares. The fund charges an expense ratio of 82 bps a year. The fund gained 9.18% year to date (as of February 6, 2017).
WisdomTree India Earnings Fund(EPI - Free Report) : This fund seeks investment results that correspond to the price and yield performance of the WisdomTree India Earnings Index, before fees and expenses. The ETF manages assets worth $1,432.08 million and an average daily trading volume of 3,407,993 shares. The fund charges an expense ratio of 84 bps a year. EPI has rallied 9.01% year to date (as of February 6, 2017).
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 >>