Should Investors Avoid India ETFs?

Earlier this month, Indian markets had cheered the appointment of renowned economist Dr. Raghuram Rajan as the next governor of the central bank. His term starts at a very challenging time and it remains to be seen whether he will be able to provide a new direction to the monetary policy that can put the economy on the growth path.

The Bottom Line

Rising interest rates, strengthening US dollar and gradually recovering US economy is leading to a general reversal of capital from the emerging economies. As a result, many of these ETFs have been hit this year—particularly after ‘tapering’ concerns emerged in May. Countries like India that are dependent on external capital to finance their growing current account deficit seem to be the worst sufferers now.

India suffers from some structural problems like slowing growth, high inflation (consumer inflation touching 10%) and widening fiscal and current-account deficits. Massive corruption and crumbling infrastructure further impede growth.

Unless the government shows political resolve to address the structural problems affecting the economy, the outlook for India ETFs remains rather cloudy as of now. Any ‘band-aid’ measures may just bring some temporary reprieve. But with the general elections due next year, the chance for some major reforms is rather slim now.

While some market participants have argued that the economic malaise affecting India has been known for a long time and nothing has fundamentally changed in the last couple of weeks and thus there may be long-term value emerging in the Indian market; we think that in view of the negative sentiment prevailing currently, investors should avoid Indian ETFs for the time being.

This article is brought to you courtesy of Neena Mishra From Zacks.

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