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India ETFs to Watch Post Trump Victory

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Republican nominee Donald Trump has made it to the White House, defying almost all opinion and exit poll predictions by political pollstars. As the market is reeling under the effect of this historic U.S. election, investors and market watchers are busy figuring out which stocks, industries and countries should be dumped from their portfolio and which are to be added.

Donald Trump has made his stance very clear against Mexico and China (read: ETFs & Stocks That Topped or Flopped After Trump Won) and some other countries during his election rallies, but one country that was able to draw his respect is India. On October 15, in New Jersey, Trump said, “” I am a big fan of India. Big… big….fan.  Your (Indian people) hard work, enterprise and education have enriched America and we will be celebrating a Trump administration together. India is the world's largest democracy and a natural ally of the U.S. In a Trump administration we will make it even better, we are going to be best friends.””

Meanwhile, we are in the dark about policies the Trump administration will adopt in relation with economic growth, foreign trade, diplomatic issues, defense and military relationship with other countries. However, if we are to keep faith in his election speeches, then certainly something good is waiting for the Indo-US relationship.

At this stage, we want to focus on some of the latest developments in the Indian economy:

Crackdown on Black Money (Parallel Economy)

On November 8, when the U.S. voters were busy casting their presidential mandate, Indian Prime Minister Narendra Modi was addressing the nation on TV channels, announcing that the government of India has decided to demonetize its high-value currency (INR 500 and INR 1,000 denomination) notes. General public has been provided a 50 days window to exchange their old currency notes with newer ones from banks for only those monies which legitimately tally with their tax declaration.

This is one of the boldest steps taken by any Indian Prime Minister ever to clean up the financial sector from notorious parallel economy, the main hindrance of India’s economic growth, security and prosperity. As per estimates by some government agencies, black money now accounts for nearly half of the country’s GDP. 

In addition to eradicating black money, the government’s decision is likely to lower cash circulation in India and strengthen use of non-cash instruments like cheques, demand drafts and plastic money (credit and debit cards). A drop in money circulation is likely to increase the value of Indian rupee which in turn will lower inflation and fuel economic growth.  

GST Bill: The Biggest Tax Reform

On August 8, 2016, Indian Parliament adopted a nationwide goods-and-services tax, or GST. The step will blend a variety of state and central levies into a national sales tax, resulting in a solo customs union for India’s 1.3 billion population. The move is expected to create seamless business transaction, lower cost of production of goods and reduce inflation – an economic issue that India has been grappling with for long. As per the government estimate, the implementation of GST will boost GDP by 1 %-2%. (read: What GST Bill Passage Means 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. Business confidence picked up in the first half of fiscal 2016-17 (April 2016 to March 2017) and households are benefiting from favorable factors owing to the pay hike in the public sector and a heavy monsoon. (read: Can India Small Cap ETFs Continue Their Bull Run?)

Moreover, in Oct 2016, 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. All the members of MPC unanimously voted in favour of the rate cut by 25 basis points to 6.25%, its lowest level since November 2010.

Is the Ball Set to Roll for Stronger Indo-US Tie up?

Trump’s victory may bring the US and India closer to complement each other’s growth prospects. Trump told in his election speeches that he wants to double U.S.’s growth and reforms the tax structure by lowering tax rate to a considerable extent. There lie opportunities for the Modi administration.

According to India’s software export body NASSCOM, Indian companies have invested $20 billion in the U.S. in last 5-years creating 0.41 million jobs in that country.

There are some other avenues for better prospects, especially 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 can India become a better trade partner for the U.S. under Trump administration.

Bottom Line

Needless to say, the U.S. presidential election in 2016 echoed Brexit as both defied popular polls. Basically, Trump took over most of the swing states. With this, Republicans also took control of both the House and Senate, leaving the world to speculate what changes await them. Trump said, “”I am looking forward to working with Indian Prime Minister Narendra Modi, who has been very energetic working to reform the Indian bureaucracy. Great man, I applaud him and look forward to do some serious trimming in the U.S. bureaucracy.””
Perhaps, a ray of hope is waiting for India under Trump administration.

ETFs in Focus

Below we highlight a few India ETFs which we believe will perform reasonably well in the days ahead:

iShares MSCI India ETF (INDA - Free Report) : This ETF seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI India Index. The fund manages an asset size of over $3,961.13 million and an average daily trading volume of 2,057,083 shares.

The fund charges an expense ratio of 68 basis points a year. INDA is up 3% in the last six months.

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 $763.1 million and an average daily trading volume of 147,003 shares. The fund charges an expense ratio of 94 basis points a year. INDY rallied 6.79% in the last six months.

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 $412.3 million and an average daily trading volume of 880,533 shares. The fund charges an expense ratio of 82 basis points a year. The fund gained 4.60% in the last six months.

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 $1,314.5 million and an average daily trading volume of 3,586,433 shares. The fund charges an expense ratio of 44 basis points a year. EPI has rallied 7.62% in the last six months.

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