These ETFs Could Benefit From The Indian Blackout
India, the world's second-largest country by population, is in the midst of a power outage that has left as many as 600 million citizens without electricity. Some Indians are now into a second day without power and the event underscores a critical point about India's growing, but fragile economy: Unlike BRICS rival China, India has failed to properly invest in infrastructure.
Its citizens are bearing the brunt of the government's infrastructure missteps. By some estimates, one in three Indians have no electricity in their homes and that was before the blackout. Amid rising deficits, slowing GDP growth (Indian GDP growth was just 5.3 percent in 2011, the worst increase in nine years) and concerns that the Indian government is turning a blind eye to the country's economic issues, the blackout is just one more event to give international investors pause about the India's failures on the infrastructure front.
Given the aforementioned factors and others, it is not surprising that India ETFs have struggled in recent months. The silver lining is that there is a chance the blackout will finally stimulate appropriate infrastructure spending within Asia's third-largest economy. These ETFs could benefit if that happens.
EGShares India Infrastructure ETF (NYSE: INXX) A side-by-side comparison of the EGShares India Infrastructure and the EGShares China Infrastructure ETF (NYSE: CHXX) illustrates just how far ahead China is when it comes to basic domestic projects. While neither has set the world on fire over the past two years, CHXX is down 18.5 percent compared to a 37 percent plunge for INXX.
At the sector level, nearly two-thirds of INXX's weight is allocated to industrials and utilities stocks. These companies may have to spend big going forward to advance Indian infrastructure, but these firms should also be first in line to reap return on investment. If India announces major infrastructure spending plans, an ETF that has "India" and "infrastructure" in its name is likely to benefit.
WisdomTree India Earnings Fund (NYSE: EPI) The WisdomTree India Earnings Fund is one of the largest India-specific ETFs on the market with over $840 million in assets under management. That bellwether status is enough to make the fund a beneficiary of any plans to bolster India's power grid, roads and water delivery systems.
EPI's combined weight to materials, industrials and utilities and is just over 28 percent, but here is the infrastructure angle pertaining to EPI. A 27 percent allocation to financials. Infrastructure projects are expensive and are rarely paid for in their entirety up front. Assuming the best and that is increased infrastructure spending, Indian banks will be financing some of these projects.
EPI is down 9.3 percent in the past month, but the ETF has shown some signs of life over the past few days. Downside is to the $15.25 area, but if EPI can breakthrough $17, it could have upside to the $19-$20 area.
India Small-Cap Index ETF (NYSE: SCIF) The EGShares India Small Cap ETF (NYSE: SCIN) could also go in this spot. Both SCIF and SCIN have decent weights to materials and industrials equities. These ETFs were shining stars in the first quarter that could now use any catalyst to run higher. A new devotion to infrastructure in India would be just the tonic to lift SCIF, which has slid almost 18 percent in the past 90 days.
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