India ETF products were in the midst of a solid run of performance over the last week until Wednesday's announcement by the Indian commerce ministry of a higher than expected wholesale price index inflation number for February. This number, a 6.95% increase over last year, was the first time India's monthly inflation number grew in the last five months. Here's the Bloomberg chart illustrating the one year performance of the wholesale price index with its recent trend of declines and then February's pop.
Lower inflation is the key ingredient needed for the interest rate cuts investors have been pricing into Indian markets. Now it appears tomorrow's Reserve Bank of India (RBI) interest rate update will likely be a non event and the timeline for potential cuts in rates has lengthened. Markets reacted swiftly to the inflation number ramifications with the largest India ETFs off around 1.5% at 3:45EST Wednesday.
This decline represented a big departure from the last week of strong India ETF performance as non leveraged India ETFs had gained between 3 - 9%. These gains had come on the back of a more positive "risk on" atmosphere in the global markets. First, the Greek debt swap was successful and markets rejoiced lifting India and a variety of other "risk on" trades. Second the RBI announced a cut to the cash reserve ratio for banks in India last Friday, which injected more liquidity into Indian markets. Finally yesterday's positive economic comments by the FOMC were bullish for the "risk on" crowd which Indian markets are heavily tied to. All of that progress however has hit a setback however with today's inflation news.
Here's the India ETF performance grid illustrating the recent performance of India ETFs leading into Wednesday's inflation data. As you can see, leading India ETFs like PowerShares' PIN, WisdomTree's EPI and iShares' INDY had all gained nicely of late.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.