After rough trading so far this year, the Indian market is now showing rays of hope for investors. Worries over monsoon deficiency, the key cause of last year's upheaval is unlikely to bother this year. Added to this, better-than-expected fiscal fourth-quarter earnings set the stage for India investing on fire lately.
La Nina: Better Monsoon Expected This Year
Last year, lower rain weighed on the all-important agricultural sector. But, the president of the Confederation of Indian Industry (CII) recently forecast India's GDP growth of 8% for fiscal 2016-2017 driven by the usual monsoon. The agency now expects the agricultural sector to expand at the rate of 6% this year. "That adds about 0.5%-1% to GDP," as per CII president.
Even Deutsche Bank is supportive of this fact. India is going to face a La Nina event this year, which is the positive phase of the El Niño Southern Oscillation and results in cooler than average sea surface temperatures in the central and eastern tropical Pacific Ocean. It is often seen as the opposite of El Nino.
As per the research house, the Indian agricultural sector exhibits a solid correlation with La Nina with average annual rains being higher than the long-term average. The bank noted that agri GDP in La Nina years expanded at an average 7.8% year over year versus an average 2.3% jump seen in years without La Nina.
Not only the agricultural sector, Deutsche Bank indicated that GDP, private consumption, and investments growth average 8.9%, 7.4%, 10.4% respectively in La Nina years against average growth of 5.8%, 5.2%, 7.2% respectively in years with no La Nina.
Earnings Recovery on the Horizon?
Nearly 76 BSE 500 companies that came up with earnings releases recently give cues of an earnings recovery. As much as 64.5% of them beat consensus estimates for net profit while 63.2% surpassed the top line. Higher government spending and a rebound in commodity prices have boosted companies' earnings, per analysts. Though it is too early to take a call over the whole Indian earnings, as of now the trend is positive.
Monetary Policy Easing
The Reserve Bank of India (RBI) lowered its key rate by 25 basis points (bps) to 6.50% on April 5, 2016, to bolster business in the economy. This was the first cut in 2016 followed by four rate cuts in 2015. The rate is now the lowest in over five years.
Investors who put more emphasis on slowing GDP data for the U.S. economy for the October-December quarter (7.3% followed by 7.7% growth rate in the prior quarter), will now find some reason to invest in Asia's third-largest economy.
IMF Moderately Bullish
The International Monetary Fund, which reduced global growth forecasts recently, maintained the same for India for this year at 7.5%. Steady private consumption is the reason for the organization's optimism though softer exports and listless credit growth are deterrents to the economy.
All these make the case for India investing stronger. While all Indian ETFs should stand to gain, below we highlight a few ETFs that have chances of outperforming ahead.
iShares S&P India Nifty Fifty Index ETF (NASDAQ:INDY)
The fund looks to track the performance of the top 50 companies by market capitalization in the Indian market. Banks are the top sector in the fund with about 23.2%. The fund has a Zacks Rank #2 (Buy).
EGShares India Infrastructure ETF (NYSEARCA:INXX)
Infrastructure stocks and the ETF should also get a boost from monetary easing. As this sector is debt-heavy in nature, a decline in interest rates will favor it. The fund has a Zacks Rank #2.
WisdomTree India Earnings ETF (NYSEARCA:EPI)
The fund looks to follow the investment results of profitable companies in the Indian equity market. The fund has a Zacks Rank #2.
EGShares India Consumer ETF (NYSEARCA:INCO)
As per the India Brand Equity Foundation, revenues of the consumer durables sector are expected to touch US$12.5 billion in fiscal 2016, up from US$ 9.7 billion in fiscal 2015. Since private consumption is pivotal in India, a look at this consumer ETF is warranted. The fund has a Zacks ETF Rank #3 (Hold).
Link to the original post on Zacks.com