India ETF Pulse: 3 Statistics To Keep An Eye On
Christian Magoon: India ETF investors have many pieces of the Indian investment puzzle they keep an eye on. There are a variety of large indices that track the markets including the Sensex and CNX/Nifty 50. There are also India ETF products that track various market segments like consumer stocks or small caps. (For a complete list of all India ETF products and performance view our India ETF list.) In addition, a variety of economic data points are released each month by the government. For many all this data is hard to follow.
One way to create a more simplified way to view the Indian market is to focus on just three data points. These data points include the Indian inflation rate, level of business confidence and interest rates. Each one of these gauges measures a key area of the Indian marketplace and helps to create a three-dimensional view of the market.
Inflation in India has been a problem. The good news is that this problem is a result of the strong economic growth rate of India. Of late inflation has seemed to stabilize in India however it still is at a level that is viewed by Indian central bankers as too high. The Reserve Bank of India (RBI) sets the interest rate level in the country. Even though investors and businesses in India have pressured the RBI to decrease interest rates, it has continually expressed concern that it could increase the rate of inflation. This would be trouble for millions of Indians as much of the inflation seen in the past has been in consumer goods and services. As an example in the fall of 2011, vegetables saw a year over year inflation rate of close to 30%. This type of inflation would be destabilizing to the country and counter productive. Here is chart showing 2012 Indian inflation rates reported by month from Tradingeconomics.com
India ETF products benefit from a lower level of inflation.
INDIA BUSINESS CONFIDENCE
Another key statistic for India ETF investors to watch is the business confidence index in India. This index reflects the sentiment of business owners in India and can have a bit of a predictive quality to it. Remember India has one of the largest consumer markets in the world so many of the businesses within India have their greatest opportunity inside the country. Thus their level of confidence is important to assess as it is a compilation of a variety of key factors including inflation rates, the value of the rupee, interest rates and the ability to transact business in the country. Some may view this gauge as being similar to a grade point average for the health of the domestic Indian economy. Below you’ll find the most recent chart on business confidence in India for 2012 via TradingEconomics.
Business confidence is a interesting aggregate indicator of the Indian economy.
INDIA INTEREST RATES
Finally interest rates in India are another key number to monitor for India ETF investors. Interest rates are set by the reserve Bank of India (RBI). Relatively high interest rates, as is the current case within India, make it harder for businesses and consumers to increase economic productivity. This in turn diminishes one of the characteristics India is known for, its strong gross domestic product growth rate. While interest rates have been stable and somewhat lower in the last several months they continue to reflect concern that the Indian economy could be a victim of rampant inflation. The inflation concern is so great that many believe the current interest rate level is even being allowed to stifle Indian economic growth Here’s the most recent interest rate graph for India.
India ETF investors must view interest rates closely.
While there are many data points coming out of India, investors can create a simple economic dashboard using the three data points highlighted above. Interest rates, inflation, and business confidence can create a foundational view on what direction India is headed and give investors an easy way to monitor this dynamic market segment.
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.”