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Fitch Lowers India's Growth Forecast: ETFs in Focus

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Fitch ratings lowered India’s GDP growth forecast to 6.9% from 7.4% after the Indian economy reported weak performance in the April-June quarter.


India’s GDP grew 5.7% annually in the April-June quarter of 2017, a three-year low. The primary factors responsible for this negative growth in GDP were prime minister Narendra Modi’s demonetization move in November, which led to slowdown in business activity, and the introduction of a major tax reform in the form of Goods and Service Tax (GST). GST weighed on manufacturing activity, as manufacturers were running down inventories on the eve of GST.


What Lies Ahead?


However, the rating agency expects the impact of demonetization and GST to fade away in the coming months. Hence, this might lead to acceleration in economic activity. Moreover, the festive season in India is expected to spur spending and might lead to an increase in growth in the coming months.


In a separate development, per an Economic Times article citing a report by Morgan Stanley, the financial services giant has predicted that digitization will pave the path to India becoming a $6 trillion dollar economy by 2027 (read: 4 Reasons to be Bullish on Indian ETFs).


Moreover, this emerging market nation’s demographics show an optimistic future, as more than 65% of the population is below the age of 35. Therefore, Indians are expected to comprise a major chunk of the global workforce in the future.


Risks Involved


“The large stock of non-performing loans on bank balance sheets could, however, dampen the outlook for credit growth and business investment,” Fitch ratings said in its statement.


Moreover, the Indian economy is at present not adding proportionate jobs to the number of people joining the workforce. 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 and could serve Modi a defeat in the parliamentary elections in 2019.


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 $4.96 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 23.5%, 13.1% and 12.4% allocation, respectively (as of Sep 29, 2017). Housing Development Finance Co, Reliance Industries Ltd and Infosys Ltd are the top three holdings of the fund, with 9.5%, 7.4% and 6.0% allocation, respectively (as of Sep 29, 2017). The fund has returned 9.63% in a year and 21.9% year to date (as of Oct 2, 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 $1.66 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 24.1%, 18.8% and 16.2% allocation, respectively (as of Oct 2, 2017). Reliance Industries Ltd, Infosys Ltd and Housing Development Finance Co are the top three holdings of the fund, with 8.3%, 7.0% and 6.4% allocation, respectively (as of Oct 2, 2017). The fund has returned 14.1% in a year and 24.2% year to date (as of Oct 2, 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 $1.11 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 26.9%, 10.2% and 8.9% allocation, respectively (as of Sep 29, 2017). Housing Development Finance Co, Reliance Industries Ltd and ITC Ltd are the top three holdings of the fund, with 7.4%, 6.9% and 5.8% allocation, respectively (as of Sep 29, 2017). The fund has returned 12.6% in a year and 24.1% year to date (as of Oct 2, 2017). INDY currently has a Zacks ETF Rank #2 with a Medium risk outlook.


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