India ETFs: Why Just Large Cap?

"So far, ETF investors have been mostly shut out of India, but that could be about to change."

So says the WSJ's Ian Salisbury. In an article this week, he discussed a new global index fund development. Apparently, several firms are working on ETFs that will track either the largest Indian companies (Barclays), or a hybrid of US/Indian firms (Amvescap). These could be available to investors before year's end.

Here's a quick excerpt:

Barclays iPath MSCI India Index ETN will follow the MSCI India Total Return Index, according to the filing. Among the index's 68 components, top holdings include Infosys Technologies Ltd., Reliance Industries Ltd., and Icici Bank Ltd., according to the ETN's prospectus.

The MSCI index is broader than the Bombay Exchange Sensitive Index, or Sensex, the 30-component index that is often quoted as the benchmark for the Indian stock market much the way the Dow Jones Industrial Average is in the U.S. In addition, the MSCI index adjusts the weightings of its components to comply with foreign investment rules.

The new Barclays investment product won't be an exchange traded fund, but an "exchange traded note," a debt security issued by Barclays, which promises investors the returns of the index. Investors who hold ETNs take on the risk that Barclays could fail to pay them. However, they don't bear risks associated with "tracking error," the difference between the return of an index mutual fund and its underlying benchmark . . .

Mutual-fund ratings firm Morningstar Inc. says it tracks only two open-end India mutual funds, the Eaton Vance Greater India Fund, which launched in 1994, and the Matthews India Fund, which appeared last year. By contrast, Morningstar follows more than a dozen China-oriented funds. China's economy "is bigger and there is generally more interest," says fund analyst Arijit Dutta. "But, arguably, India is a deeper and more liquid market," he adds.

Mr. Dutta notes that broader emerging-markets funds, which Morningstar generally recommends to investors over single-country funds, put, on average, about 5% of their assets in India -- an amount that is more or less equal to the allocation they give China and Hong Kong combined. Closed-end funds that invest in India include Blackstone Asia Advisors LLC's India Fund and the Morgan Stanley India Investment Fund.

Interesting idea, and makes lots of sense.

Too bad its only their large cap -- I'd like to see midcap or all cap versions also . . .

Source:
ETF Investors See Passage to India
Ian Salisbury
WSJ, December 6, 2006; Page C11
http://online.wsj.com/article/SB116536969902741807.html

See also:

Barclays and PowerShares To Offer India ETFs

India ETF coming but don't get too excited
Aaron Pressman
BW, June 16, 2006
http://www.businessweek.com/investing/insights/blog/archives/2006/06/india_etf_comin.html

Comments

[mSquare:]

The proposed introduction of these India Index funds/notes will surely end the high premium investors paid for the closed-end fund IFN.

See how poorly IFN has fared compared to the Bombay's SENSEX as it's high premium (as much as 40% in Summer) is down to below 5% now. In the past 6 months, Sensex has risen almost 40% v/s IFN less than 5%! See
finance.yahoo.com/q/bc...;t=6m&l=on&...

It will also hopefully end the manipulations such as Rights Issues, fund buy-backs etc. that IFN has been doing the past few years to keep justifying it's 3-4% fees - good while it lasted, but hopefully these Index funds will give investors a much needed alternative.

2006 Dec 11 12:46 AM