The effect of prime minister Narendra Modi has been intense in the economy and the stock world, leading to heavy gains for the major bourses since last Diwali. The BSE Sensex has gained more than 15% while the National Stock Exchange index (Nifty) has fetched higher returns of nearly 17%.
Will the bullish trend continue heading into the Hindu New Year celebrated as Diwali or the Festival of Lights given demonetization and the introduction of the Goods and Services Tax (GST) that has slowed down economic activity this year? The combination of both factors have compelled both International Monetary Fund (IMF) and World Bank to slash GDP growth forecast for this year to 6.7% and 7%, respectively. Notably, economic growth slipped to a three-year low of 5.7% in April-June quarter (read: India's GDP Growth at 3-Year Low: ETFs in Focus).
However, a slew of economic reforms, a rebound in agriculture, a recovery in private investment, growth in corporate earnings, increase in consumption and a fall in interest rates are fueling economic growth and driving stocks higher. Investors should note that FDI is a major source of capital inflows to the country that led to higher stock prices. With foreign exchange reserves of more than $400 billion, India has become the world's fastest-growing economy and has been the bright spot in the emerging markets’ space.
Further, the optimism and fervor surrounding Diwali and the old belief of ‘Muhurat’ trading are attracting capital inflows to the country. Muhurat trading is the auspicious stock market trading for an hour on the day of Diwali that according to Hindu belief protects individuals from evil and brings prosperity throughout the year. Since Modi took office in May 2014, the Nifty delivered gains in two of the past three years. The index generated 2.6% returns in 2014 and 0.2% in 2016 while slipped 1.6% in 2015 (read: Indian Stocks: A Bubble or a Buying Opportunity?).
Ahead of this Diwali, which falls on Oct 19, the major Indian benchmarks the major Indian benchmarks are already up more than 3.5% this month. The positive trend is likely to continue heading into the New Year with more bullish fundamentals.
Below, we have highlighted four funds that will brighten investors’ portfolio with enhanced returns. These products have generated excellent returns over the trailing one-year period and have a solid Zacks ETF Rank #2 (Buy), suggesting their continued outperformance in the months to come (see: all the emerging Asia Pacific ETFs here).
VanEck Vectors India Small-Cap Index ETF (SCIF - Free Report)
This fund targets the small-cap segment of the Indian equity market and tracks the MVIS India Small-Cap Index. In total, it holds 178 securities in its basket with none making up for more than 2.22% of assets. SCIF is also well spread across various sectors with industrials, consumer discretionary, materials and financials making up for a double-digit exposure each. The fund has so far amassed $309.7 million in its asset base while charging 78 bps in annual fees. The ETF has gained 26.3% in the year-to-date timeframe.
Columbia India Infrastructure ETF
This fund provides exposure to the growing infrastructure corner of the broad Indian market by tracking the Indxx India Infrastructure Index. Holding 30 stocks in its basket, the fund is moderately concentrated across components with each security holding no more than 6.32% share. From a sector look, industrials take the top spot with 36.3% share, closely followed by materials (28.5%), utilities (16.2%), and telecom services (13.9%). The fund has accumulated just $48 million in its asset base and charges 88 bps in annual fees. The ETF is up 24.3% in one year (read: 4 Reasons to be Bullish on Indian ETFs).
WisdomTree India Earnings Fund (EPI - Free Report)
This product tracks the WisdomTree India Earnings Index, holding 305 profitable companies using an earnings-weighted methodology. Each security holds less than 9% of the assets. The fund is heavy on financials with one-fourth share, while energy and information technology also get a double-digit allocation in the basket. The fund has amassed $1.7 billion in its asset base and expense ratio comes in at 0.84%. The fund has gained about 20.5% in a year’s time.
Columbia India Consumer ETF (INCO - Free Report)
This ETF targets the consumer industry of India and follows the Indxx India Consumer Index. It holds 30 stocks in its basket with none holding more than 5.5% share. The product has amassed $128.2 million in its asset base and charges 89 bps in annual fees. From a sector look, automobiles occupies the top position with 25.3% share while personal goods and auto components round off the next two places with over 19% share each. INCO has gained 20.1% in the last 12 months.
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