India ETFs In Focus On Rate Cut Hopes

by: Zacks Funds

Chances of another rate cut by India's central bank, Reserve Bank of India (RBI), increased significantly as retail inflation eased for a third straight month in October. As per government data, consumer prices were up around 4.2% on an annual basis. This is the slowest rise in the last 14 months and was in line with the median consensus in a Reuters' poll of economists.

In October, a six-member monetary policy committee (MPC) headed by the governor of Reserve Bank of India, Urjit Patel, decided to cut the repo rate in order to boost the Indian economy. This was the first time that the newly formed MPC decided on the monetary policy, which also issued a favorable inflation and economic growth outlook. The RBI MPC is due to review rates on December 6 and 7.

Lately, India has been in the news, thanks to the demonetization move by Indian Prime Minister Narendra Modi. In order to tackle tax evasion, illegal money, fake currency and corruption, high-denomination bank notes of INR500 and INR1000 were withdrawn. The step is expected to have deflationary impact on inflation and remove unaccounted and untaxed money, thus making it easier for RBI to meet its medium-term inflation target of 4%.

As a result, India ETFs like iShares S&P India Nifty Fifty (NASDAQ:INDY), iShares MSCI India (BATS:INDA), WisdomTree India Earnings ETF (NYSEARCA:EPI) and PowerShares India Portfolio ETF (NYSEARCA:PIN) could be on investors' radar in the upcoming weeks.

Small-cap stocks are generally more susceptible to changes in domestic economy. EGShares India Small Cap ETF (NYSEARCA:SCIN), VanEck Vectors India Small-Cap Index ETF (NYSEARCA:SCIF) and iShares MSCI India Small-Cap Index ETF (BATS:SMIN) are some of the ETFs tracking small-cap companies based in India.

However, Donald Trump's win in the U.S. is likely to cause uncertainty in the coming days in a few foreign economies. India might also be at the receiving end of Trump's restrictive policies, particularly related to immigration and outsourcing.

Trump plans to levy higher taxes on companies for outsourcing jobs to places like India. As per India's central bank, India-exported software services constituted $50 billion worth of exports to North America. As a result, uncertainty looms large for India.

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