Trouble Brewing for Indian ETN

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Includes: EPI, INP, PIN
by: Tom Lydon

India’s exchange traded note (ETN) has been suspended from issuing new shares after regulators in the country banned the fund from trading offshore derivatives.

Indian regulators barred iPath MSCI India (NYSEARCA:INP) from trading offshore derivatives, which sheds new light on how overseas investments can go off track, reports Ian Salisbury for The Wall Street Journal. Barclays said it was going to cooperate fully with the authorities, but the company isn’t commenting about what it means in a broader sense for the exchange traded product industry.

Since India restricts foreign investment activity, Barclays uses derivatives to replicate the returns of the MSCI index that tracks Indian stocks. Regulators accused Barclays of failing to provide them with accurate details about its offshore trades and thus banned it from conducting further activities, the Journal said.

Exchange traded products have has their share of upheavals this year, particularly when commodity focused funds faced scrutiny from the Commodity Futures Trading Commission (CFTC).

Once Barclays announced the Indian regulators’ decision, the ETN’s shares jumped 2.6% to $63.91, a bigger gain than other ETFs that weren’t affected by the decision. (Are India ETFs too hot?)

The gain suggests that traders expect a shortage in the ETN to develop while it is no longer able to issue new shares. No matter, India’s economy is doing well and investors are interested in the country.

Even while the ETN is suspended, India remains an appealing destination for investors. Overall, industrial output is projected to have expanded 10.3% in October, as per the latest official data released Friday. Recovery has been particularly impressive for the manufacturing sector, which grew by 11.1% in October, reports SIFY Business. Growth for the first half of this year was in line with fiscal stimulus, and this uptrend is expected to continue despite the drought and the Diwali holiday season. (The next step for India’s ETFs).

Other ways to play India:

  • PowerShares India (NYSEARCA:PIN): up 78.9% year-to-date

  • WisodmTree India Earnings (NYSEARCA:EPI): up 95.5% year-to-date