Inside The Surge In India Small Cap ETFs

indiaInvestor sentiment towards emerging markets finally reversed after the surprise delay in QE tapering by the Fed. These markets are now showing clear signs of recovery and investors are trying to reap returns from their current depressed share prices.

One such market that has shown a sharp recovery is India, thanks to a slew of measures taken by the new RBI Governor, strengthening rupee and foreign capital inflows.

Inside the Recent Surge

The Asia’s third largest economy is trying to liberalize its financial markets in an effort to attract more foreign investors. In addition, India is in talks to enter into the emerging markets’ bond indices.

The Indian currency has shown a surprising comeback with double-digit gains after hitting a record low of around 69 per dollar during the month of August. In fact, the rupee was the best performing currency in September, outshining other major global currencies (read: Play Rising Rupee with These Two ETFs)

This strength was buoyed by RBI measures that allow banks to swap dollars received in foreign currency deposits for rupees and double the money that banks can raise through overseas bonds, which can also be swapped for rupees.

Improving fundamentals and a solid currency rebound have been well received in the markets and Indian stocks have given impressive performances over the past month. In fact, India ETFs have been the best performer among all the emerging Asia Pacific funds over the trailing one month.

While this is true for all cap securities, small caps surged higher than their large cap counterparts. Below, we take look at the three ETFs, which track the Indian small cap market.

All of these funds offer exposure to pint-sized securities in the nation and while they will likely see more volatility, they could see better returns should the current trend continue as we move ahead toward the end of the year (see: all the emerging Asia Pacific ETFs here).

EGShares Indxx India Small Cap Fund (SCIN)

This fund tracks the Indxx India Small Cap Index, and is unpopular and illiquid with just $18.2 million in AUM. It has an expense ratio of 0.85%. With a holding of 76 securities, the product is heavy on financials with one-fourth share, while consumer goods, industrials and healthcare also get double-digit allocation in the basket.

Apollo Hospitals, Mahindra & Mahindra and Aditya Birla Nuvo are the top three elements in the basket with a combined 14.86% of assets, suggesting decent exposure in terms of individual holdings.

The fund gained nearly 8% over the trailing one month but is down 28.7% in the year-to-date period.

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