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This India ETF Is Perking Up

May 24, 2016 2:44 pm
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Conventional wisdom would dictate that although emerging markets stocks and the relevant exchange-traded funds are performing better this year than they have over the past couple of years, this probably is not the time to embrace Indian stocks.

After all, commodities prices are rebounding, and that is not good news for the Indian economy, a net importer of commodities. Some investors may remember 2013 when gold prices raced to new highs before cratering. That widened India's trade deficit while punishing the rupee. At least in theory, India ETFs should be languishing.

Take A Second Look

Give the EGA Emerging Global Shares Trust (NYSE: INXX) some credit. Although it is still down on a year-to-date basis, INXX is up 15.6 percent over the past three months. That is more than double the returns of the MSCI Emerging Markets Index over the same period and about 50 percent better than some of the most widely held diversified India ETFs.

Related Link: What Challenges Does Tim Cook Face In India?

INXX turns six in August, and over that time, the ETF has tempted and tortured investors bold enough to take a focused approach to Asia's third-largest economy. Investors that have previously nibbled at infrastructure ETFs know the story. The selling point is most of the world, developed or emerging, has significant infrastructure woes that will require trillions of dollars of investment over the coming years.

India And Infrastructure

India is not an exception. Arguably, the country is the rule when it comes to infrastructure potential, because India has some of the worst infrastructure in the world and its status as an emerging market is not an excuse, as China's infrastructure investments put India to shame.

However, there are catalysts for INXX.

INXX Catalysts

“Foreign direct investment (FDI) flows into India hit an all-time high in January 2016 at $3.5 billion (on a 12-month moving average basis) and increased by 27.5 percent for the fiscal year beginning April 2015 through February 2016 from the prior period. In an April 7 report, ratings agency Moody’s noted that ‘the rise in FDI points to stronger investor interest in India on the back of robust economic growth. Higher inflows also suggest that recent government policies, such as effort to liberalize foreign investment limits in several sectors and the 'Make In India' initiative, are bearing fruit,” according to EGShares.

There need to be catalysts to justify INXX trading at 42.5 times last year's earnings, according to issuer data. That is more than triple the earnings multiple on the MSCI Emerging Markets Index.

“INXX, which has had flat fund flows year-to-date in spite of a >17 percent rally from its lows of February to present levels. With about $39.5 million in AUM presently the fund is the fourth largest offering from the issuer, tracking the Indxx India Infrastructure Index with top weightings (ordinary shares) as follows currently: 1) Gail India Ltd. (6.26 percent) 2) NTPC Ltd. (6.02 percent), 3) Ultratech Cement Ltd (5.75 percent), 4) Ambuja Cements Ltd. (5.30 percent), 5) Bharti Infratel Ltd. (5.23 percent),” said Street One Financial Vice President Paul Weisbruch in a note out Monday.

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