ETFs to Buy as India Reclaims Tag of Fastest-Growing Economy

The Indian economy is coming back in the picture. Latest data released by the statistics office reveal that the economy grew at its fastest pace in five quarters and might be recovering from the two setbacks faced, demonetization of high currency notes and the Goods and Service Tax (GST) (read: Will Latest Bank Fraud Impact India ETFs?).

A strong rebound in the agriculture, manufacturing and industrial sectors helped the economy stage a comeback. “Robust growth in manufacturing and significant acceleration in construction mark a turnaround in the country’s economic growth momentum,” the finance ministry said.

Into the Headlines

The Central Statistical Office (CSO) reported that the Indian economy grew 7.2% in the December quarter of 2017 compared with an upwardly revised 6.5% expansion in the previous quarter. The more preferred Gross Value Added (GVA) increased 6.7% in the quarter compared with the upwardly revised 6.2% in the previous quarter. GVA is preferred over GDP as it excludes the impact of indirect taxes and subsidies.

The strong expansion bears testimony to the fact that the government’s reforms are finally impacting the economy positively. To a certain extent, the strength in these numbers can be attributed to the lower base effect, as the slowdown owing to demonetization and GST weighed on the Indian economy.

Manufacturing grew 8.1% compared with 6.9% in the previous quarter while agriculture grew 4.1%, compared with 2.7% in the previous quarter. Construction grew 6.8%, up from 2.8% sequentially.

Coming to Gross Fixed Capital Formation, a proxy for private investment was up 12% in the third quarter compared with 8.7% in the same period last year. However, the decline in private consumption is bothering investors.

“A 12 per cent growth in fixed capital formation pulled up GDP growth, the need of the hour is how we can nurture this budding investment revival with conducive policies. However, an area of concern is decline in private consumption growth to 5.6 per cent in Q3 of FY18 from 6.6 per cent in Q2 in FY18,” India Ratings’ Chief Economist D K Pant said.

Another major area of concern among investors is that India’s data release is being compared with irregularities in China’s data releases, as certain provinces of China recently admitted to falsifying their data. “The accelerated pace of the recovery and the broad-based pick-up across sectors is however a surprise to us,” Nomura argued. In Q3 2016, the Indian economy grew 7%, despite the impact of demonetization, raising concerns over authenticity of India’s GDP data and excessive dependence on organized sector data.

Let us now discuss a few ETFs focused on providing exposure to the emerging market nation (see all Asia-Pacific Emerging ETFs here).

iShares MSCI India ETF INDA    

This fund provides exposure to large and mid-sized Indian equities.

It has AUM of $5.4 billion and charges a fee of 68 basis points a year. Financials, Computer-Software and Consumer Discretionary are the top three sectors of the fund, with 22.5%, 14.4% and 12.2% allocation, respectively (as of Feb 28, 2018). Housing Development Finance Co, Reliance Industries Ltd and Infosys Ltd are the top three holdings of the fund, with 9.1%, 8.3% and 6.8% allocation, respectively (as of Feb 28, 2018). The fund has returned 15.1% in a year. INDA has a Zacks ETF Rank #1 (Strong Buy), with a Medium risk outlook.

WisdomTree India Earnings Fund EPI

This fund provides exposure to Indian equities in multiple capitalization segments.

It has AUM of $1.7 billion and charges a fee of 84 basis points a year. Financials, Energy and Information Technology are the top three sectors of the fund, with 22.8%, 19.0% and 18.4% allocation, respectively (as of Mar 1, 2018). Reliance Industries Ltd, Infosys Ltd and Housing Development Finance Co are the top three holdings of the fund, with 9.3%, 8.3% and 6.2% allocation, respectively (as of Mar 1, 2018). The fund has returned 17.4% in a year. EPI has a Zacks ETF Rank #1, with a Medium risk outlook.

iShares India 50 ETF INDY

This fund provides exposure to large-cap Indian equities.

It has AUM of $1.2 billion and charges a fee of 93 basis points a year. Banks, Computer-Software and Refineries/Marketing are the top three sectors of the fund, with 26.1%, 11.6% and 10.6% allocation, respectively (as of Feb 28, 2018). Reliance Industries Ltd, Housing Development Finance Co and Infosys Ltd are the top three holdings of the fund, with 8.1%, 7.1% and 5.8% allocation, respectively (as of Feb 28, 2018). The fund has returned 15.6% in a year. INDY has a Zacks ETF Rank #1, with a Medium risk outlook.

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ISHARS-SP INDIA (INDY): ETF Research Reports
 
ISHARS-M INDIA (INDA): ETF Research Reports
 
WISDMTR-IN EARN (EPI): ETF Research Reports
 
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