3 ETFs Influenced by India's Inflation

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Includes: EPI, INP, SCIF
by: Kevin_Grewal

Despite witnessing stellar economic growth over the past few years, rising prices could put a damper on India’s future and its exchange traded funds (ETFs).

In general, the global commodities market has witnessed a slight pull back over; however, commodity prices continue to remain elevated putting strain on the consumer. On the consumer side, this drastic increase in prices has been led by a surge in food prices which has been brought on by pure supply and demand forces. Although India is expected to witness a relatively decent annual rainfall building up short-term supply of food and agriculture-based products, weak storage facilities and infrastructure will likely negate any benefits that the nation could reap from increased production.

Furthermore, an increase in per capita income and a widening middle class are pushing up demand for food. Over the past decade, per capita income in India has increased by more than 50 percent and the nation’s middle class is fast becoming accustomed to Western culture, further supporting demand for meat which requires more grain to produce.

The implications of rising commodity prices are also starting to hurt Indian companies as many of them are chasing sales-volume growth due to immense competition, making it hard to pass on increasing supply costs to consumers. Eventually, higher supply costs will eat away at margins and profitability, despite increased sales growth.

Some equities that are likely to feel the wrath of inflation in India include:

  • WisdomTree India Earnings Fund (NYSEARCA:EPI), which is designed to measure the performance of companies incorporated and traded in India that are profitable.
  • iPath MSCI India ETN (NYSEARCA:INP), which is a senior, subordinated debt instrument that gives exposure to the Indian markets.
  • Market Vectors India Small Cap Index ETF (NYSEARCA:SCIF), which allocates nearly 17% of its holdings to the consumer discretionary sector.

Disclosure: No Positions.