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India’s consumer prices increased more than expected in August, as food prices showed strong gains. Consumer prices increased 3.36% year over year in August compared with 2.36% in July. The reading was above the 3.2% expected by analysts polled by Reuters. Consumer Food Price Index increased 1.52% in August on a monthly basis.


Slowdown in GDP growth


India’s GDP grew 5.7% annually in the April-June quarter of 2017, a three-year low. Economists had expected growth to be around 6.5%, as they had presumed that the fallback due to demonetization would be transitory. India’s GDP growth has declined for six straight quarters now (read: ETFs to Lose If Trump Bans Trade With North Korean Partners).


Per Raghuram Rajan, former RBI Governor, the Indian economy faces huge risks if the number of job additions does not match the number of new entrants to the labor force.


Coming to other factors that led to slowdown in growth in the quarter, Prime minister Narendra Modi in a bold move, removed 86% of the currency in circulation in November in order to curb corruption and black money.


However, recent figures from the Reserve Bank of India (RBI) indicate that 99% of the banned currency found its way back into the system. The Prime minister has invited widespread criticism for his move, which led to a slowdown in business activity due to the cash crunch and what evidently failed to achieve its ulterior motive.


Moreover, in a move aimed at unifying the country’s tax code, the Indian government introduced a major tax reform earlier this year in the form of Goods and Service Tax (GST).


GST has weighed on manufacturing activity, as manufacturers were running down inventories on the eve of GST. Analysts expect GST to impose short-term pains on growth and be beneficial in the long run.


Rate cut in the cards?


RBI slashed the repo rate by 25 basis points to 6% in August. Repo rate is the rate at which the central bank lends to commercial banks (read: Indian Central Bank Cuts Key Rates: ETFs to Buy).


Despite dismal GDP growth, the inflation reading has dampened chances of a rate cut in the monetary policy review by the Reserve Bank of India when they meet next on Oct 4, 2017. This has led to an increase in government bond yields, as markets have reduced the probability of a rate cut in the near future. Moreover, the beginning of the festive season in India is expected to spur spending and might lead to an increase in growth in the near future.

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 - Free Report)     


This fund provides exposure to large and mid-sized Indian equities.


It has AUM of $5.30 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 23.64%, 12.75% and 12.52% allocation, respectively (as of Sep 12, 2017). Housing Development Finance Co, Reliance Industries Ltd and Infosys Ltd are the top three holdings of the fund, with 9.55%, 7.53% and 5.72% allocation, respectively (as of Sep 12, 2017). The fund has returned 16.68% in a year and 27.26% year to date (as of Sep 13, 2017). INDA currently has a Zacks ETF Rank 2 (Buy) with a Medium risk outlook.


WisdomTree India Earnings Fund (EPI - Free Report)


This fund provides exposure to Indian equities in multiple capitalization segments.


It has AUM of $1.81 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 25.69%, 22.35% and 15.38% allocation, respectively (as of Sep 13, 2017). Housing Development Finance Co, Reliance Industries Ltd and Infosys Ltd are the top three holdings of the fund, with 6.56%, 6.31% and 5.79% allocation, respectively (as of Sep 13, 2017). The fund has returned 22.59% in a year and 30.23% year to date (as of Sep 13, 2017). EPI currently has a Zacks ETF Rank 2 with a Medium risk outlook.


iShares India 50 ETF (INDY - Free Report)


This fund provides exposure to large-cap Indian equities.


It has AUM of $1.16 billion and charges a fee of 93 basis points a year. Banks, Computer-Software and Refineries/Marketing are the top three sectors of the fund, with 27.06%, 10.45% and 9.38% allocation, respectively (as of Sep 12, 2017). Housing Development Finance Co, Reliance Industries Ltd and ITC Ltd are the top three holdings of the fund, with 7.50%, 7.17% and 6.25% allocation, respectively (as of Sep 12, 2017). The fund has returned 18.84% in a year and 29.54% year to date (as of Sep 13, 2017). INDY currently has a Zacks ETF Rank 2 with a Medium risk outlook.


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