After commanding significant attention over the course of 2023 and through the early stages of this year, it may feel as though as focus on India equities and related ETFs has waned. That shouldn’t be the case, because with assists from the financial services and technology sectors, India stocks hit record highs on Thursday.
The Federal Reserve is inching closer to monetary easing. So there’s speculation some emerging market central banks, including India’s, will follow suit. That potentially presents opportunity with the newly minted WisdomTree India Hedged Equity Fund (INDH ).
Specific to India, some market observers argue that with inflation recently perking up there, the central bank doesn’t have the latitude to lower rates. In terms of lowering the rupee to help the country’s exporters, the Reserve Bank of India (RBI) doesn’t need to do that. And that’s because India’s currency recently hit a record low against the dollar. That explains in part why INDH has gained more than 11% in just over two months on the market.
Why INDH Matters Now
INDH could soon earn its stripes and it doesn’t need the assistance of RBI easing. In fact, the ETF could benefit if the central bank holds off lowering interest rates. That’s because some analysts note rate cuts by India’s central bank would weigh on bank earnings. That’s an important consideration when it comes to INDH, because the ETF allocates 22.15% of its weight to financial services stocks.
Said another way, Fed rate cuts could be more beneficial to India stocks, including INDH holdings. That’s because that could act as a catalyst for global equities.
“Interest rates across the world have seen a sharp jump and a cycle reversal seems likely in the coming quarters which would create headroom for the RBI to also taper down benchmark interest rates in India,” said Mahesh Nandurkar, head of India research at Jefferies, in a recent report.
Additional Favorable Attributes
History shows international stocks often perk up leading up to the Fed’s first rate cuts after a tightening cycle and are higher a year after the initial cuts. There are no guarantees that history will repeat. But INDH has some other favorable attributes.
The MSCI India Index is higher by 4% over the past month. That gain is largely facilitated by the financial services, technology, and healthcare sectors. Those three groups combine for over 42% of INDH’s roster.
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