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India ETFs have remained the ace in the emerging market pack so far this year. iShares India 50 (INDY - Free Report) gained 16.8% so far this year while small-cap ETF iShares MSCI India Small-Cap (SMIN - Free Report) has advanced about 24.4% year to date (as of March 17, 2017).
The much-anticipated win of Narendra Modi-led Bharatiya Janata Party (BJP) in some key state elections mainly drove the India stock market to new highs. Several India ETFs hit a 52-week high post the BJP win. However, there are several other reasons that worked for India investing. Below we highlight some of the key factors that did the trick:
BJP Win in Key States
Modi is viewed as a pro-growth politician. His party’s win in some important states mean that the central government will now be able to pass most of the key reformative bills and measures effortlessly. The government enacted ‘the biggest tax reform’ on August 8, 2016 braving barriers coming in the way of a nationwide goods-and-services tax or GST.
The bill was being debated for long between the government and opposition. Most recently, GST council granted the two residual parts of supporting legislation for applying the breakthrough tax reform, easing their introduction in Parliament and state legislatures (read: What GST Bill Passage Means for India ETFs).
Solid GDP Data Defying Demonetization
India came up with upbeat GDP growth data of 7% in the October–December quarter despite demonetarization which led many to downgrade the outlook on the economy. The numbers breezed past economists’ expectations of 6.4%. This data should spur investors’ optimism around small-cap stocks as capitalization boosts the domestic economy.
Oil Price Below $50
With oil prices sliding below $50 for the first time since December (despite OPEC output cut deal) on higher U.S. drilling, India has got another reason to cheer. It should bode well for India as the country is a huge importer of crude (read: If the Oil Crash Continues, Buy These 5 ETFs to Outperform).
Dollar Slows Down
The latest dollar weakness following the Fed’s dovish guidance should also favor emerging market investors. Dollar ETF PowerShares DB US Dollar Bullish ETF (UUP - Free Report) is down about 2.2% so far this year (as of March 17, 2017). If this happens, rupee and India equities will register an advance.
Three days after Modi’s sweeping victory in state elections, Bloomberg estimated that the S&P BSE Sensex index will gain about 8% by December. One analyst believes that “India will get $15-$20 billion a year from emerging-market allocations, which will partly get a boost due to political stability after Modi’s win in state elections.”
Notably, analysts are being bullish despite overvaluation in India’s stock market. Bloomberg noted that “one-year forward price-to-earnings ratio climbed to the highest since 2010.”
Overseas investors purchased a net $1.56 billion of India shares in February, putting an end to a four-month sell-off. Their March purchases amounted to about $2.21 billion, with $867.6 million bought in just two days after the election results were released.
Are Small-Caps Best Way to Play the India Market?
While there are several options in the space to ride out the latest optimism in the India market, we have highlighted three ETFs that have witnessed astounding gains last week and could be solid picks for investors at the moment. These products are of smaller capitalization (see all Asia-Pacific (Emerging) ETFs here).
The products are iShares MSCI India Small-Cap (SMIN - Free Report) , Columbia India Small Cap ETF and VanEck Vectors India Small-Cap ETF . These funds beat the S&P 500-based ETF (SPY - Free Report) and large-cap India ETF INDY in the last five trading sessions, reflecting Modi’s victory. SMIN and SCIF have a Zacks Rank #1 (Strong Buy) while SCIN has a Zacks Rank #2 (Buy) (read: 5 ETFs to Buy in March).
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5 Reasons to Buy India ETFs Now
India ETFs have remained the ace in the emerging market pack so far this year. iShares India 50 (INDY - Free Report) gained 16.8% so far this year while small-cap ETF iShares MSCI India Small-Cap (SMIN - Free Report) has advanced about 24.4% year to date (as of March 17, 2017).
The much-anticipated win of Narendra Modi-led Bharatiya Janata Party (BJP) in some key state elections mainly drove the India stock market to new highs. Several India ETFs hit a 52-week high post the BJP win. However, there are several other reasons that worked for India investing. Below we highlight some of the key factors that did the trick:
BJP Win in Key States
Modi is viewed as a pro-growth politician. His party’s win in some important states mean that the central government will now be able to pass most of the key reformative bills and measures effortlessly. The government enacted ‘the biggest tax reform’ on August 8, 2016 braving barriers coming in the way of a nationwide goods-and-services tax or GST.
The bill was being debated for long between the government and opposition. Most recently, GST council granted the two residual parts of supporting legislation for applying the breakthrough tax reform, easing their introduction in Parliament and state legislatures (read: What GST Bill Passage Means for India ETFs).
Solid GDP Data Defying Demonetization
India came up with upbeat GDP growth data of 7% in the October–December quarter despite demonetarization which led many to downgrade the outlook on the economy. The numbers breezed past economists’ expectations of 6.4%. This data should spur investors’ optimism around small-cap stocks as capitalization boosts the domestic economy.
Oil Price Below $50
With oil prices sliding below $50 for the first time since December (despite OPEC output cut deal) on higher U.S. drilling, India has got another reason to cheer. It should bode well for India as the country is a huge importer of crude (read: If the Oil Crash Continues, Buy These 5 ETFs to Outperform).
Dollar Slows Down
The latest dollar weakness following the Fed’s dovish guidance should also favor emerging market investors. Dollar ETF PowerShares DB US Dollar Bullish ETF (UUP - Free Report) is down about 2.2% so far this year (as of March 17, 2017). If this happens, rupee and India equities will register an advance.
Analyst Forecast Bullish Despite Stretched Valuation
Three days after Modi’s sweeping victory in state elections, Bloomberg estimated that the S&P BSE Sensex index will gain about 8% by December. One analyst believes that “India will get $15-$20 billion a year from emerging-market allocations, which will partly get a boost due to political stability after Modi’s win in state elections.”
Notably, analysts are being bullish despite overvaluation in India’s stock market. Bloomberg noted that “one-year forward price-to-earnings ratio climbed to the highest since 2010.”
Overseas investors purchased a net $1.56 billion of India shares in February, putting an end to a four-month sell-off. Their March purchases amounted to about $2.21 billion, with $867.6 million bought in just two days after the election results were released.
Are Small-Caps Best Way to Play the India Market?
While there are several options in the space to ride out the latest optimism in the India market, we have highlighted three ETFs that have witnessed astounding gains last week and could be solid picks for investors at the moment. These products are of smaller capitalization (see all Asia-Pacific (Emerging) ETFs here).
The products are iShares MSCI India Small-Cap (SMIN - Free Report) , Columbia India Small Cap ETF and VanEck Vectors India Small-Cap ETF . These funds beat the S&P 500-based ETF (SPY - Free Report) and large-cap India ETF INDY in the last five trading sessions, reflecting Modi’s victory. SMIN and SCIF have a Zacks Rank #1 (Strong Buy) while SCIN has a Zacks Rank #2 (Buy) (read: 5 ETFs to Buy in March).
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 >>