Meanwhile, India’s current account deficit touched 4.8% in the last fiscal year, which is considerably above its ideal range of 2.5% of GDP. The lofty oil import bill, coming from high prices, and an increase in the demand for gold coming from the drop in gold prices have given a boost to the country’s imports.
Conclusion
The Indian ETFs will also witness near-term pressure after Goldman Sachs offered advice to sell India’s stocks, as reported by Bloomberg. With the Reserve Bank of India stepping in to support the rupee, the country’s economic problems could get worse. The June-through-July outflow from Indian stocks reached $2.8 billion, its highest level since the global financial crisis of 2008. But so far, foreign investors have been keeping faith in Indian stocks, which have witnessed net inflows of $12.8 billion this year. This is significantly better than its other Asian peers. However, with Goldman’s call, we are going to witness an increase in outflows in the coming quarters.
So far this year, the iShares S&P India Nifty 50 Index has remained ahead of the WisdomTree India Earnings Fund, which is shown in the picture above.
| 2013 | EPI | INDY |
|---|---|---|
| Q1 | -$91.66Mn | +97.41Mn |
| Q2 | -$215.65Mn | +$12.66Mn |
| Q3 (1 Month) | -$32.03Mn | +$10.06Mn |
The WisdomTree India Earnings Fund has recorded net outflows of more than $300 million this year, with each reported quarter showing a negative flow of funds. On the contrary, the iShares S&P India Nifty 50 Index has reported net inflows of more than $120 million this year with positive flows in every quarter. The iShares S&P India Nifty 50 Index has proven to be a much better option, particularly during times of slowing economic growth, due to its smaller basket with a focus towards well established firms.
However, India’s economic woes are expected to continue and at least in the near term, the WisdomTree India Earnings Fund and the iShares S&P India Nifty 50 Index will remain under pressure. A further fall could make them attractive from a valuation standpoint since they would be trading at steep discounts to other emerging market ETFs. Therefore, investors are better off staying away from these ETFs at the moment.
The article ETF Alert: Should You Invest in This Emerging Market? originally appeared on Fool.com and is written by Sarfaraz Khan.
Sarfaraz Khan has no position in any stocks mentioned. The Motley Fool owns shares of ArcelorMittal. Sarfaraz is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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