India ETF products surged on Friday as the Reserve Bank of India (RBI) announced a surprise cut to the cash reserve ratio for banks of 75bps after local market hours. This fuels speculation that actual interest rate cuts are likely at the RBI's next review of interest policy March 15. Indian markets took the news very positively with India ETFs like INDY and PIN gaining 2.4% and 1.7% respectively in mid-day trading.
In addition Friday's markets pushed forward as Greece officially announced the passage of the debt swap giving markets the ability to put the latest EU flare up behind it for now. Thursday had seen unofficial news come out of Greece that the swap was likely to go through and markets around the world had slid forward in anticipation of Friday's announcement. Here is Thursday's performance chart showing the initial move upward for all India ETFs.
Source: IndiaETFs.com
So in addition to Thursday's gains today's market action at mid-day showed ETFs like EPI, the largest India ETF and SCIF, the best-performing India ETF year to date, surging between 2% - 3%. Here's the real time pricing snapshots from Yahoo Finance.
As mentioned in previous posts, the success of the Greek debt swap has allowed investors to maintain their risk on approach to investing, which is essential for Indian markets. This year more than $7 billion of Foreign Institutional Investor (FII) assets have made their way into Indian markets, powering them to substantial gains.
In addition the markets have been desperate for an interest rate cut in India. With rates at 8.5%, slightly higher than Egypt by the way, inflation risks appear to have taken a backseat to the risk of a material stall in India's GDP growth. Friday's action by the RBI is being viewed as a very encouraging sign that indeed interest rates will fall on March 15. If not, markets will likely send a strong message of displeasure.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: Christian Magoon is the publisher of IndiaETFs.com.
