ETFs

India Remains Opportunistic

As talks about economic bubbles, inflation and currency manipulation continue to loom over China, many have turned to neighboring India to fulfill their appetite for emerging nations and for good reason.

Recently, India’s central bank Governor Duvvuri Subbarao stated that the nation’s economic growth is strengthening and the accelerated growth pace in the world’s second fastest growing major economy has allowed the nation’s benchmark stock index to nearly double in the last year.

Some reasons behind the Southeast Asian’s ability to grow so rapidly include increases in public spending, auto and infrastructure demand and industrial production.  India has suffered a backlog of infrastructure to build mass transport, power generation, pollution control, waste treatment and water systems and is finally starting to do so. 

Another factor fueling the nation’s growth is the recent increase in business investment and confidence flooding its capital markets. IPOs and debt originations are coming back to life in numerous sectors including, but not limited to, technology and luxury goods like diamonds.

In regards to the near future, the nation is expected to continue to see these trends.  With an abundance of young intelligent workers, a high propensity to save and rising incomes, the purchasing power in the nation is expected to grow at an exponential rate fueling the demand for goods and services, which will likely further stimulate its economy.

Another factor working in favor of the nation is the importance that President Obama is placing on building a long-lasting relationship between the U.S. and India.  As of now, the U.S. is India’s largest trading partner and a healthy relationship between the two nations will only benefit India. 

Factors such as capital flows, increases in domestic demand, portfolio flows, a strong savings rate and strong trade alliances enable India to be in a good position to continue moving forward.  In fact, a combination of the aforementioned has led some economists to anticipate India to grow at a faster rate than previously expected, witnessing GDP growth close to 8% for the year.

Some possible plays on the South East Asian nation include the following:

  • the iPath MSCI India Index ETN (INP), which is structured as a senior, subordinated debt instrument.  INP closed at $65.02 on Wednesday.
  • the WisdomTree India Earnings Fund (EPI), which is designed to measure the performance of companies incorporated and traded in India that are profitable.  The ETF holds companies such as Reliance Industries and Infosys Technologies (INFY).  EPI closed at $22.74 on Wednesday.
  • the PowerShares India Portfolio (PIN), which boasts Oil & Natural Gas Corporation and Hindustan Unilever in its top holdings.  PIN closed at $22.24 on Wednesday.

When investing in these equities in addition to considering the upside potential, it is equally important to keep in mind the volatility and inherent risks involved with investing in emerging markets.  A good way to protect against this volatility and risk is through the implementation of an exit strategy which triggers price points at which an upward trend could potentially be coming to an end.

According to the latest data at www.SmartStops.net, an upward trend in the mentioned equities could come to an end at the following price points: INP at $62.92; EPI at $22.03; PIN at $21.89.  These price points change on a daily basis as market conditions fluctuate and updated data can be found at www.SmartStops.net.

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