India ETF Alert: Government Hits Reform Button (PIN, SCIN, INXX, EPI, SCIF, INDL, INDA, INP, INDY, INDZ)
Christian Magoon: India ETF investors should benefit from two reforms announced Tuesday by the Indian government aimed at stabilizing the value of the rupee and increasing global participation in India’s capital markets.
To help stabilize the weakening rupee, the government is allowing more foreign ownership of corporate bonds and mutual fund debt. In addition it is streamlining the process for retail investors to open rupee denominated accounts and not limiting the holding period. These moves and others were reported by the Wall Street Journal Tuesday. These reforms are designed to counteract the rupee’s decline in value. Over the last month, the rupee has plummeted versus the U.S. Dollar and hit record lows. Here’s a two year chart from Yahoo Finance comparing the U.S. Dollar to the India Rupee. It clearly shows the U.S. Dollar’s growing strength against the rupee, which does not bode well for India.
Besides the reforms relating to the rupee, the government announced that they were easing restrictions on retail foreign investors. Now members of the Gulf Cooperation Council as well as members of the European Council will not be restricted from investing in India going forward. This opens Indian capital markets to 33 more countries on the heels of the easing of restriction to other foreign investors in January. Especially important is the opening of Indian capital markets to the GCC as large scale investment interest has been reported from that region.
Markets responded positively to both of these announcements on Tuesday with almost all non leveraged India ETF gaining 1% – 2% according to the IndiaETFs.com performance grid. Leading the pack were INDA and SCIF, gaining around 2% for the day. Here’s the snapshot.
Tickers Listed: EG Shares India Small Cap ETF (NYSEARCA:SCIN), EG Shares India Consumer ETF (NYSEARCA:INCO), EG Shares India Infrastructure ETF (NYSEARCA:INXX), WisdomTree India Earnings ETF (NYSEARCA:EPI), Market Vectors India Small Cap ETF (NYSEARCA:SCIF), Direxion Daily India Bull 3X Shares (NYSEARCA:INDL), iShares MSCI India Index (NYSEARCA:INDA), iPath MSCI India Index ETN (NYSEARCA:INP), iShares MSCI India Small Cap (NYSEARCA:SMIN), iShares S&P India Nifty 50 Index (NYSEARCA:INDY), PowerShares India (NYSEARCA:PIN), Direxion Daily India Bear 3X Shares (NYSEARCA:INDZ).
While both reforms won’t magically solve the Indian equity market or rupee slump, they do point to an Indian government that seems to be in the mood to make policy changes to combat growing internal issues. This perception itself is positive for the markets and the rupee. Should continued reforms be announced and executed on, India will begin to head back to the promise it has held for India ETF investors as recently as early 2012.
Christian Magoon is Publisher of GoldETFs.biz and IndiaETFs.com. He is also CEO of Magoon Capital, a strategic consultant firm to asset managers. Christian Magoon is an ETF insider, having launched over 40 ETFs in the United States to date. A widely recognized thought leader on finance and market issues, Christian regularly contributes to many financial media outlets. Prior to forming Magoon Capital in 2010, Christian was President of Claymore Securities (now Guggenheim Investments), where he built one of the fastest growing and most innovative ETF businesses in the country, gathering more than $3 billion in AUM in three years. He launched more than 40 ETFs, introducing many “firsts” to the U.S. market, including the first Frontier Markets, Sector Rotation, Solar Energy, Timber, BRIC and suite of China focused ETFs. Christian consistently provides his industry insights and knowledge as a commentator in the U.S. media speaking publicly on macro investment issues and ETF related topics. Follow him on Twitter@ChristianMagoon. In 2008, he was named by Institutional Investor News as one of the five people to watch in the U.S. ETF marketplace. In 2011, Financial Planning magazine dubbed Christian an “ETF Pioneer.”