As part of a plan to repeat the China growth story or even better it, a US-based Emerging Global Advisors have introduced a new India-themed exchange traded fund (ETF) on the New York Stock Exchange (NYSE). The fund named EG Shares Indxx India Small Cap ETF (SCIN) offers a new way for investors to get exposure to small-cap Indian companies and bring the emerging Indian markets under their investment portfolios.
Most of the India based ETF's so far have been dominated by holdings in large cap companies but EG Shares Indxx India Small Cap ETF (SCIN) has gone the other way by choosing India's small and mid cap sector. With its launch SCIN becomes the fourth ETF offering pure play exposure to the Indian equity market, but is the first to focus exclusively on the country’s small cap equities. India has a growing middle class that's young educated, hardworking and filled with entrepreneurial ambition and its no surprize that the Indian small cap sector has outperformed large cap in Indian equities in the recent past. The EG Shares Indxx India Small Cap ETF (NYSE ticker: SCIN) is tracking the Indian small cap sector with 75 holdings as the index consists of common stocks that are listed on India’s National Stock Exchange and Bombay Stock Exchange. The top holdings of SCIN don’t include mega cap stocks such as Reliance Industries and Infosys found in most other India ETFs; Patni Computer Systems (3.4%), Indian Bank (2.5%), and Mangalore Refinery (2.0%) are among the largest individual components.
SCIN is the third country-specific ETF from EGA, joining the China Infrastructure Index Fund (CHXX) and Brazil Infrastructure Index Fund (BRXX). The company also offers a suite of “pure play” diversified emerging markets products and would be introducing a second India centric ETF soon called the EG Shares Indxx India Infrastructure Fund (NYSE ticker: INXX) focusing on infrastructure and will have a portfolio of 30 companies involved in India’s infrastructure build-out.
Key Statistics of The Indxx India Small Cap Index FundETF Ticker: SCIN (NYSE)
Bloomberg Index Ticker: EGSXIIST
ETF Gross expenses 1.58%
ETF Net Expenses .85%
Index Holdings 75
Index Avg Market Cap $632 mil
Index Median Market Cap $473 mil
Index Average P/E: 13.04
Index Price/Book: 2.25
Index Price/Sales: 1.43
Index Price/Cash flow: 11.04
Why India?
India is the world’s most populous democracy and is home to the world’s 12th largest economy by nominal GDP. Indian Economy is considered to be largely robust and a stable democratic government headed by an able Prime Minister, Dr. Manmohan Singh who is largely seen as the man responsible for the county's economic liberalization process.
Even President Obama had admired Dr. Singh's policies earlier in the year by saying that he, Dr, Singh “has been doing a wonderful job in guiding India even prior to being the prime minister along the path of extraordinary economic growth. That is marvel, I think, for the entire world”.
Economy experts say that India is much more attractive than most International markets as it had an expected GDP growth of 7-8% in CY 2010 while developed markets had been growing at around 2%. India has $2 trillion in debt, but for most other measures, it is a healthy economy. Its forex and gold reserves are $287.5 billion, and the savings rate is 35% of GDP, with an investment rate of 32.1% of GDP, including a good chunk for infrastructure. Estimates for the outlook of the Indian economy vary considerably, with some analysts predicting that the country could surpass the U.S. in the next 30 years.
An investors’ survey for Bloomberg BusinessWeek had found that 40% of American investors plan to increase their exposure to international stocks over the next five years, up from 22% a year ago. There is no surprise that the Exchange traded funds focused on India are likely to flourish in times to come as more and more fund managers look at the Indian growth bandwagon and try to create a value product for their investors.
Even though the BRIC thesis posits that China and India will become the world's dominant suppliers of manufactured goods and services, respectively, the downside is that India's economy is not risk-free. While outsourcing is a huge boon to the Indian economy, having too large of a dependence on American interest (and money) could be a deal-breaker until the country's economy is able to sustain itself with the same degree of prosperity that it's currently enjoying.
