Market Overview

Checking In: Visiting An India Small-Cap ETF


As if things weren't already tough enough for Indian stocks and ETFs tracking the country to start this year, along comes the array of problems in the Middle East and $100 oil. Terrible news for a rapidly expanding economy that is not only seeing its oil demands surge, but the strain of inflation become a larger and larger problem.

Sometimes, that's just how the cookie crumbles for an economy like India's, the second-fastest growing major economy in the world behind China.

We don't know what is going to happen next in Libya, but we do know that seemingly everyday oil is higher, India-specific ETFs fall. The retrenchment in India ETFs has been especially tough on small-cap fare such as the EGShares India Small Cap ETF (NYSE: SCIN), which was the first India small-cap to debut in the U.S.

SCIN made its debut in July and Van Eck rolled out the Market Vectors India Small-Cap ETF (NYSE: SCIF) in August. We've previously explored the differences between these two funds and they share one thing in common since November: REALLY ugly charts.

SCIN was once almost a $27 ETF. It now resides around $18. In terms of vital stats, SCIN trades almost 39,000 shares a day and has accumulated nearly $31 million in assets, decent totals considering the ETF's lifespan to this point.

The ETF tracks 74 stocks with an average market value of $857 million blah blah blah. What investors want to know right now about India ETFs is this: Value or value trap?

Well, to answer that directly: There is value in India ETFs, it's a matter of how long is an investor willing to wait for that value to materialize. In addition, SCIN and SCIF probably won't lead the India ETF group out of their doldrums. Rather, it will be large-cap ETFs that boost the small-cap funds.

Is SCIN a legitimate ETF that will be with us for a while? Yes. Are Indian small-caps a compelling asset class? Yes. Look at SCIN this way: If one has $1,800 burning a hole in his or her pocket, buying 100 shares of this ETF is worth it. Then gradually add in as the ETF moves above $20.

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