India ETFs Surge on Goldman Comments
Shares of various India-specific ETFs soared Thursday, following bullish comments on Asia's third-largest economy from Goldman Sachs. The WisdomTree India Earnings ETF (NYSE: EPI), which has over $1.05 billion in assets under management making it the largest India ETF, are up 3.2 percent after Goldman forecast Indian GDP growth of 7.2 percent in 2014. That is well above the bank's forecast of growth of 5.4 percent this year.
Goldman forecast GDP growth of 6.5 percent for India in 2013. Declining oil prices, increased global demand and domestic reforms are among the catalysts Goldman's cites as being favorable to the Indian economy in the coming years, Barron's reports.
Other marquee India ETFs are getting in on the act as well. The iShares S&P India Nifty 50 Index Fund (NASDAQ: INDY) is up nearly 3.6 percent while the PowerShares India Portfolio is higher by 2.7 percent.
Goldman also noted suggested reforms to India's power sector look "promising," according to Barron's. Those comments could be the reason the EGShares India Infrastructure ETF (NYSE: INXX) is higher by nearly 3.3 percent. India's infrastructure is regularly viewed as decrepit and a significant hurdle for the economy to overcome. So bad is India's power grid that earlier this year a blackout there left as many as 600 million Indians without power.
Investors and ratings agencies have been critical of India's infrastructure and the government's lack of action on that front. However, on expectations that situation is bound to change, INXX has been on the best performer of three country-specific emerging markets infrastructure ETFs year-to-date. On the other hand, it should be noted INXX has handily trailed its Brazil and China equivalents since the funds debuted in 2010.
Inflation, arguably the biggest problem facing the Indian economy, could remain high through the third quarter of next year, said Goldman. Since high inflation prevents near-term easing in the form of interest rate cuts, Goldman sees the Reserve Bank of India paring rates by 50 basis points in each of the next three years starting in 2013.
In its research note, Goldman also highlighted the recently announced government reforms aimed at increasing foreign direct investment as possible catalysts for the Indian economy. Earlier this year, Indian policymakers reduced the country's punitive diesel subsidy while making the country's massive insurance and retail sectors more open to foreign investment. Additional liquidity was also provided to the country's banks.
Small-cap ETFs are participating in today's rally as well. The Market Vectors India Small-Cap ETF (NYSE: SCIF) is higher by 3.3 percent on above average volume while the EGShares India Small-Cap ETF (NYSE: SCIN) is up 2.4 percent.
The Goldman comments come just two days after Moody's Investors Service reiterated a stable outlook on India's sovereign debt rating. Moody's also affirmed a Baa3 credit rating for India, which is one notch above non-investment grade status. That news was seen as crucial to India's chances of retaining its investment-grade credit, which is already the lowest among the four BRIC nations. Moody's, Standard & Poor's and Fitch Ratings all have the lowest investment-grade ratings on India's sovereign debt.
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