Five Reasons Why India ETFs Are Rising

Michelle Remo, “Big 4″ observer
September 21, 2012 /

After collapsing a brutal 40% last year,WisdomTree India Earnings Fund ( EPI ), the largest ETF tracking the South Asian country, has rallied 17% year to date.

That surpasses the 12% gain by iShares MSCI Emerging Markets Index ( EEM ) and 13.6% by iSharesMSCI EAFE Index ( EFA ), which tracks developed foreign markets.

Part of the robust returns came from its currency’s strength against the dollar.WisdomTree Dreyfus Indian Rupee ETF ( ICN ) has appreciated 5% year to date.

Monty Agarwal, managing partner and chief investment officer of MA Managed Futures Fund, says the government has taken bold steps to support the rupee by attracting foreign investments and cutting the budget deficit.

Bullish Chart Action

Trading patterns show India ETFs are in a solid uptrend with strong institutional support. EPI gapped above its 200-day moving average to confirm a new uptrend Sept. 14, after the Federal Reserve announced a third round of quantitative easing, which drove investors into high-risk assets.

EPI has a rather weak IBD Relative Strength Rating of 38, which means its price action has lagged 62% of the market in the past year. But its Accumulation-Distribution Rating has improved from a C+ to A. That shows institutions are heavily buying shares.

There are four other passages to India for U.S. ETF investors:

IPath MSCI India Index ETN ( INP ), up 19% year to date.

PowerShares India Portfolio (PIN), up 11% year to date.

Market Vectors India Small Cap Index ETF (SCIF), up 17% year to date, is the only one in the bunch that hasn’t broken above its 200-day moving average.

EG Shares India Consumer ETF (INCO) has rallied the most year to date, 26%, and is the only one that’s reached a 52-week high. It sports the highest RS Rating in the group, 72, and an A- Acc-Dis Rating.

Fundamental Case

Russ Koesterich, global chief investment strategist at iShares, explained the improvements he’s seen in the South Asian country in a blog Thursday, “4 Reasons Why We’re Upgrading India.”

To summarize Koesterich:

1. Indian stocks are trading at low valuations. EPI trades at 9.25 times prospective earnings vs. 11.5 for emerging markets on average. It has a price to cash flow of 3 vs. 6 for EMs.

2. India’s gross domestic product grew a better-than-expected 5.5% year over year in the second quarter. Its GDP is projected to grow 6.4% annually.

3. India’s planning commission has targeted growth of 8.2% from 2012 to 2017, surpassing the 7.9% target hit the previous five years.

4. Investors are underinvested in India relative to other emerging markets, which should boost prices if investor confidence returns.

But Koesterich overall is “neutral” on India and “still some way from turning bullish” because of high inflation and a weak rupee that will limit future interest-rate cuts. The country has fiscal deficits and erratic policymakers.


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