As such, ETFs on India have been on fire since the start of this year on hopes of an end to the Congress-led regime and its dysfunctional policies as well as the selection of a pro-growth politician Narendra Modi as India’s next prime minister.
BJP’s comprehensive win led India’s Bombay Stock Exchange (BSE Sensex) to cross the 25,000 mark on May 16. Most analysts are optimistic on the start of India’s new era. This was more so as BJP won enough seats to form the government as a single party without any alliance. India has seen a majority government for the first time since 1984.
Though India is currently plagued with several structural issues like heightened inflation, devaluation of currency and slowing growth, major investment banking firms appear bullish on the nation’s stock market. Recently, Deutsche Bank lifted the December 2014 Sensex goal to 28,000.
Macquarie and UBS also have increased their targets for the Nifty to reflect BJP’s win. While UBS now forecasts 8,000 points for Nifty against 6,900 for 2014, Macquarie lifted the 12-month Indian index target to 8,400 points from 7,200.
While there are several options in the space to ride out the optimism in the Indian market, we have highlighted three Indian ETFs that have witnessed astounding gains this year and could be better picks for investors.
These products hail from smaller capitalization and infrastructure segments. Notably, one can take the best glimpse of a domestic economy through a small cap stock. These stocks are less ruffled by the broader market gyrations, and most importantly, currency woes (read: Time to Focus on Small Cap ETFs?).
Though presently staying in stable territory, a decline in currency has been one of the India’s major issues in the recent past. Also, small-cap stocks perform better in a trending market.
On the other hand, Modi’s seemingly pro-growth and pro-privatization policies are expected to bolster sectors like infrastructure. The state of Gujarat – where Modi was Chief Minister for three terms – is known for registering marked improvement in power supply and road infrastructure.
EGShares Indxx India Small Cap Fund (NYSEARCA:SCIN)
This fund provides exposure to the small cap segment of the broad Indian equity market by tracking the Indxx India Small Cap Index. Holding 56 stocks in its basket, the fund allocates higher to Yes Bank Ltd, Cummins India Ltd and Federal Bank Ltd with a combined 15% share. From a sector look, financials make up for one-third of the portfolio while consumer goods and industrials get double-digit allocation in the basket (read: Time for the India Small Cap ETF (SCIN – ETF report)?).
The ETF is unpopular and illiquid with AUM of $17.8 million and average daily volume of about 17,000 shares. The fund charges 85 bps in fees per year and added nearly 14.4% post BJP’s victory and 39% this year. SCIN has a Zacks ETF Rank of 2 or ‘Buy’ rating.