This week, Moody's downgraded India's entire banking industry from "stable" to "negative." Now there is speculation that a sovereign downgrade of India could be next by Moody's. As reported by The Times of India, Moody's will meet with India's policymakers on the country's sovereign rating this Monday.
The Financials Issue
So what non-sector India ETFs have the most exposure to financials? Here they are in order of financial weightings:
It appears Powershares PIN ETF is the big winner on this latest development.
Of the two small cap India ETFs, SCIN has 18.30% in financials, a fair amount more compared to $SCIF at 12.98%.
My prudent stance is to lighten up on India ETFs with 20% or more financial exposure as this all unfolds. Proving my point, breaking news has occurred out of India that S&P has just upgraded the banking sector. Tread carefully as the uncertain mounts.
The Sovereign Issue
With the risk of a sovereign rating downgrade on the table, I would begin to review hedging strategies around Indian positions. While the S&P could come to India's rescue on a sovereign downgrade (which could be a great buying opportunity), there is a lot of initial headline risk here, as India is on the last rung of investment grade status.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: This article is not intended to be an offer to sell or purchase securities and is not being provided as investment advice.