Raghuram Rajan recently said that he will not continue as the governor of the Reserve Bank of India for a second term. The surprising statement raised enough doubts over the path of the central bank's policies in the post-Rajan era. Rajan, who was also the former chief economist of the International Monetary Fund, said that after completing his first-term as the governor in September, he would return to academia.
In this scenario, dropping India mutual funds with an unfavorable Zacks Rank from one's portfolio would help an investor to avert losses that might stem from the negative impact of Rajan's exit.
Rajan's Effective Initiatives
Rajan played an important role in bringing stability to the economy during his tenure as the governor of the central bank. His effective policies led the Indian currency rupee, which suffered heavily for years, to make a remarkable rebound against the major currencies. This helped India to accumulate a significant volume of foreign-exchange reserves and the exchanges to hit an all-time high level.
Moreover, Rajan succeeded in controlling India's sky-high inflation significantly by taking some bold steps. Easing inflation also helped the governor to cut key interest rates by 150 bps, which in turn made the investment scenario favorable. Rajan also came up with some initiatives to control the volume of bad debts. He had laid down a March 2017 target to fully "reveal the problem loans and make adequate provisions."
Concerns Regarding Post-Rajan Era
Even before becoming the governor of the central bank, Rajan earned enough respect from the investment world after forecasting the emergence of the 2008-2009 global financial crises. Meanwhile, during Rajan's tenure, the economy witnessed growth of 7.6% in fiscal 2016 - the quickest pace of growth in four years and higher than 7.2% in the prior year. His policies also played a major role in attracting foreign investors' attention.
Rajan's exit may thus hurt the sentiment of foreign investors. Many have also started to fear that Rajan's descendant will not be as active as him in stressed-asset management. Moreover, information that prime minister Narendra Modi is disinclined to extend Rajan's term by two more years gave a rude shock to the investment world. Some investors are speculating that India's growth and reform goals might be affected by Rajan's departure.
3 India Mutual Funds to Avoid
There are high chances of uncertainty over the coming months until Rajan's successor is named. Even after that, the next governor's moves and credibility in the global investing world will be closely monitored by investors. Against this backdrop, we have highlighted three India mutual funds that carry either a Zacks Mutual Fund Rank #4 (Sell) or #5 (Strong Sell) and should better be dumped for now.
Eaton Vance Greater India A (MUTF:ETGIX) invests a large chunk of its assets in equity securities of companies located in the Indian subcontinent with a minimum of half of its assets allocated in securities of Indian companies. This Zacks Mutual Fund Rank #5 fund declined nearly 3.3% over the past one-year period. Moreover, it has an expense ratio of 1.88%, higher than the category average of 1.78%. Also, the fund currently has a three-year Sharpe ratio - an important indicator of risk - of 0.51, which is not only below 1, but is also lower than the category average of 0.58.
Wasatch Emerging India Investor (MUTF:WAINX) invests generally in equity securities of companies that derive a significant portion of their revenues from operations in India. This Zacks Mutual Fund Rank #5 fund declined nearly 0.9% and 2.3% over the past one-year and year-to-date periods, respectively. Moreover, it has an expense ratio of 1.95%, higher than the category average of 1.78%. Also, the fund currently has a three-year Sharpe ratio of 0.80.
Matthews India Investor (MUTF:MINDX) invests the lion's share of its assets in securities including common stocks and preferred stocks of companies domiciled in India. This Zacks Mutual Fund Rank #4 fund declined nearly 3.3% over the past one-year period. Also, the fund currently has three-year and five-year Sharpe ratios of 0.82 and 0.40, respectively.