Emerging markets have taken center stage in recent years as investors have become increasingly attracted to the lucrative opportunities presented in this corner of the market. Despite this recent trend, many have grown somewhat leery of several countries’ financial standings and of their ability to produce any kind of real return albeit their attractively high growth rates. One country in particular has taken a significant amount of heat for their troubling economic position: India, the most populous democracy in the world, is now showing several unsettling signs of financial duress [see also Evaluating India ETFs: Three Important Factors To Consider].
India’s alarmingly large budget and trade deficits have sent up several red flags, making investors understandably bearish on essentially all Indian asset classes. Despite its thriving middle class, the country is plagued by socioeconomic turmoil: India currently holds the largest concentration of people living below the World Bank’s international poverty line. The pressures of transforming into a developed nation have forced Indian governments to ramp up spending on welfare programs.
The most logical counter policy would be for the country to raise taxes to offset its spending; however, India has failed to increase tax revenues, causing their budget deficit to swell to nearly 6% of GDP. Another cause for concern stems from the country’s widening trade deficit and export growth slowdown, triggered by the lack of U.S. and European demand coupled with rising oil prices and import costs. Not surprisingly, India’s currency has also taken a major hit, slumping to all time lows as investors continue to become more risk averse. Without sufficient economic reform, India faces several threats of losing their coveted status among emerging market countries [see also Using ETFs To Measure Interest Rate Risk].
A viable question for investors to ask is whether India’s problems are a serious cause for concern or if the country’s financial position is simply being exacerbated by outside economic forces. As with all emerging market countries, volatility and uncertainty is to be expected: a trade-off investors are willing to take for relatively higher returns. However, amidst the Euro Zone crisis and global financial uncertainty, skepticism continues to rise as risk averse investors steer clear of any investments in highly volatile markets such as India’s. For those who believe that simply no investment looks attractive in the current environment, it may be a good time to buy in cheap in hopes of an economic turnaround for India [see also 3 ETFs For A Euro Zone Double-Dip].
And thanks to the rapidly developing ETF industry, there are now numerous ways to gain exposure to this emerging market economy. Whether your an India bull or bear, we outline 6 ETFs for investors wishing to make a play on India:
- Daily India Bear 3x Shares (INDZ) / Daily India Bull 2x Shares (INDL): Both of these funds offer sophisticated investors a powerful tool to bet on or against a turnaround for the Indian equities market. It is important to note that the daily reset feature combined with the explicit leverage in these ETFs make it imperative for investors to monitor this position on a daily basis.
- PowerShares India Portfolio (PIN): This ETF is designed to replicate the Indian equity markets as a whole through a group of 50 large cap Indian stocks. Although the portfolio is rather shallow, it does offer exposure to several different sectors, including: energy, technology, financial services, and basic materials.
- India Small-Cap Index ETF (SCIF): This ETF represents a way for investors to gain access to segments of the Indian stock markets that are not generally included in larger, more popular ETPs. SCIF focuses on small cap Indian stocks, which serve as a better “pure play” on the local economy.
- India Infrastructure ETF (INXX): With a focus on India’s infrastructure sector, INXX is one of the more targeted emerging market products available. This ETF may be too granular for some investors, but could be used as tactical tilt towards this particular segment of the Indian market.
- Dreyfus Indian Rupee Fund (ICN): This ETF may be a useful tool for investors who believe the Rupee will appreciate relative to the dollar or for those looking to hedge out existing exposure.
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Disclosure: No positions at time of writing.