India ETF products finished the week negative after concerns including the rising price of oil and the rupee losing value against the dollar pushed markets downward. Broad based India ETFs like INDY and INDA from iShares were off 2.6% and 3.4% respectively.
India currently imports close to 80% of its oil. As word spread of Iranian oil exports being cut by around 300,000 barrels a day due to sanctions, markets quickly pushed oil to $106 a barrel. The impact of this price increase on Indian productivity pulled Indian markets downward.
In addition the rupee has been on a two week slide against a stronger U.S. dollar. A devaluation of the rupee versus the U.S. dollar happened late last year during the peak of the EU debt crisis and Indian markets slid along with that plunge as well. A weaker rupee is not good for India importers or the government's fiscal deficit. Here's the three month chart of the U.S. dollar versus the rupee. Notice the recent rise in the value of the U.S. dollar after it declined significantly in January.
Non leveraged India ETF products were down 2% - 4% for the week with the two largest India ETFs, WisdomTree's EPI and PowerShares' PIN off 3.9% and 2.5% respectively. Here's a performance grid snapshot from IndiaETFs.com sorted by one week performance.
Year to date India small cap ETFs continue to lead in performance. ETFs like Market Vectors' SCIF, and EG Shares' SCIN have produced gains of over 30%. Right behind the two small cap ETFs is the India Infrastructure ETF (INXX) which has gained 27% year to date. Here's the performance grid snapshot sorted by year to date returns from IndiaETFs.com.
India is still the leading country in terms of performance versus the other BRIC countries - Brazil, Russia, and China - in 2012. Here's the price comparison chart using the iShares Brazil ETF (EWZ), the Market Vectors Russia ETF (RSX), the WisdomTree India ETF and the iShares China ETF (FXI) as proxies.
India has benefited from strong Foreign Institutional Investor inflows which are currently at $9 billion year to date. In addition with inflation generally trending lower over the last six months, investors believe an interest rate cut is on the horizon. The Reserve Bank of India has already reduced the cash reserve ratio for banks twice, adding more liquidity into the system.
Risks remain however as Indian markets have cooled over the last six weeks or so. Concerns about the impact of the new government budget, an increase in the tax on gold imports, a February inflation number that showed a spike upward and the threat of a new tax on the Indian economy due to higher oil prices are just some of the factors that weigh on Indian markets. Fortunately FII inflows appear to be strong for the time being, helping to combat the numerous threats to market valuations. Clearly for those invested in India ETF products, it is a time to be cautious.