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India ETFs On The Comeback Trail

July 20, 2016 8:14 am
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Indian equities and the relevant U.S.-listed exchange-traded funds stumbled out of the gates to start 2016, pinched by rebounding oil prices (India is a net importer of the commodity), but India ETFs have recently been getting their groove back.

Slack performances by Indian stocks are viewed as disappointing because, as a net importer of oil, India's economy was expected to benefit from lower crude prices. That trend could be starting to materialize. Although some of the well-known India ETFs still trail the MSCI Emerging Markets Index on a year-to-date basis, over the past 90 days, India ETFs are winning.

Success With India ETFs

For example, over the past 90 days, the iShares S&P India Nifty 50 Index Fund(NASDAQ: INDY) and the iShares MSCI India ETF (BATS: INDA) are up 5.8 percent and 3.6 percent, respectively, while the MSCI Emerging Markets Index is higher by 1.9 percent over the same stretch.

Related Link: EM Bond ETFs: Desirable Yield Destinations

Although oil prices are rebounding this year, they are still low enough to provide tangible to the Indian economy, Asia's third-largest.

“According to the Reserve Bank of India, the current account balance has improved, and inflation has eased, which enabled the central bank to cut interest rates by 2.5 percent since early 2015. The country’s fiscal position has similarly progressed, leading to the ability to increase public spending, including $32 billion on infrastructure over the next year, as Bloomberg data shows,” said BlackRock in a recent note

INDA And INDY In Focus

The $3.8 billion INDA and INDY sport price-to-earnings ratio north of 20, which makes India appear expensive relative to the MSCI Emerging Markets Index, but Indian stocks currently trade at multiples that are in line with historical averages.

Valuation likely is not investors' primary concern with Indian stocks. Familiar issues such as high inflation and slow-moving government reforms are the considerations for foreign investors when mulling stakes in Indian stocks or ETFs.

“To be sure, there are many risks with investing in India. It is important to see domestic consumption pick up, given that external demand is weak. And continued controlled inflation is central to the Indian story, as is progress on reform. Efforts to improve India’s regulatory framework continue, albeit slowly. Progress on key policy matters is crucial not only to boosting the productivity of the Indian economy, but also to supporting investor sentiment,” added BlackRock.

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