WisdomTree India Earnings Fund

After being drawn to the potential for meaningful growth offered by emerging markets in Russia, China and Brazil, investors are now looking at options in India that had so far been overshadowed by the China success story. India is the world’s most populous democracy and is home to the world’s 12th largest economy by nominal GDP with some analysts predicting that the country could surpass the U.S. in the next 30 years. Investors can benefit by adding some exposure to India in a portfolio as India continues to make the fiscal and social changes that will lead to greater sustained growth in the long run.

In addition to diversified emerging markets funds and BRIC ETFs, which generally make a significant allocation to Indian equities, there are a number of ETFs that invest exclusively in India’s stock market. Top of the line is definitely the popular WisdomTree India Earnings Fund (EPI), which tracks companies selected for the Wisdom Tree India Index that are incorporated and traded in India and are profitable and eligible to be purchased by foreign investors. They are weighted based on their earnings in the prior fiscal year. The fund's 125 holdings include various sectors and also include Infosys and Icici Bank. The fund has a low net expense ratio of 0.88% and as at 14 April 2010, the fund climbed 9.7% YTD. This is the most liquid of the three ETFs discussed.

Due to the weighting methodology of EPI, this fund gives a larger allocation to small and mid cap stocks than other India ETFs. Although large cap stocks receive the largest allocation in EPI, this fund does maintain exposure to firms of all sizes, as companies with a market capitalization of less than $10 billion account for more than 40% of total holdings. Unlike most equity ETFs, EPI doesn't track a market cap-weighted index, instead replicating the performance of a benchmark that weights holdings by earnings. Its main focus is on industrial materials (32%) and financials (23%).

Fund Inception Date 2/22/2008
EPI expense ratio: 0.88%
EPI: 23.46 +0.33 +1.43%

Top Holdings in WisdomTree India Earnings Fund As of 7/9/2010

1. Reliance Industries Ltd 10.41%
2. Infosys Technologies Ltd 8.54%
3. Oil & Natural Gas Corp Ltd 7.25%
4. State Bank of India Ltd 3.51%
5. Housing Development Finance Co 2.71%
6. Bharti Airtel Ltd 2.65%
7. ICICI Bank Ltd 2.51%
8. Tata Consultancy Services Ltd 2.36%
9. HDFC Bank Ltd 1.97%
10. Hindustan Unilever Ltd 1.82%

India ETF - Sector Breakdown As of 7/9/2010

1. Financials 22.33%
2. Energy 20.32%
3. Information Technology 14.39%
4. Materials 12.65%
5. Industrials 7.80%
6. Consumer Staples 4.84%
7. Telecommunication Services 4.80%
8. Consumer Discretionary 4.69%
9. Utilities 4.65%
10. Health Care 3.53%

India’s strength comes from the fact that its internal market is large, but is also better insulated than other emerging markets from exogenous shocks.

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iShares S&P India Nifty 50 Index (INDY)

In this era of global economic uncertainty, it is not wise to keep all your eggs and in the same basket and hence more and more investors are looking for value creating opportunities mainly in the emerging markets of the world specially India which is seen as the next big largely untapped market compared to the overflowing Chinese markets. The facts speak for themselves and reveal that India is not far behind from neighboring China. Although India hasn't sported the GDP growth that China has, but from 2003-2008, India's average growth rate has been a healthy 8.5% making it the second-fastest growing major economy in the world. Most of the existing India centric funds have shown impressive results and there is no surprise that many more India centric funds are in the pipeline. The sooner one can enter the enormous Indian markets which are fundamentally strong and clawed by he results of other global markets, the better it is going to be for the investor. The returns can be impressive as well and who knows they might even buy you a ticket to visit the Taj Mahal in India.

Joining this Indian success story is the the iShares S&P India Nifty 50 Index Fund (INDY) which is designed to track the S&P CNX Nifty Index that represents the 50 largest and most liquid Indian securities listed on the National Stock Exchange (NSE) of India. The Index is a rupee denominated index designed to measure the performance of the largest and most liquid companies in the Indian equity market that are available to international investors.


iShares S&P India Nifty 50 Index Fund (INDY) began trading on the Nasdaq on 20th November, 2009. INDY is the fourth exchange traded product (ETFs and ETNs) to track Indian equities, but it is the first to follow the Nifty. As its name implies, the fund has 50 holdings. INDY has a 0.89% expense ratio. Current top sector and industry weightings include banks 17.1%, refineries 13.2%, computer-software 12.1%, engineering 6.7%, and steel & steel products 5.0%. Investors looking for large cap exposure may like INDY, but its relatively high expense ratio and concentration among major holdings are potential drawbacks although as on 14th April 2010, the ETF was up 10% YTD.

Top Daily Holdings as of 7/9/2010

RELIANCE INDUSTRIES LTD 11.47%
INFOSYS TECHNOLOGIES LTD 8.90%
ICICI BANK LTD 6.32%
LARSEN & TOUBRO LTD DETACHED 6.19%
ITC LTD 5.06%
HOUSING DEVELOPMENT FINANCE 4.94%
HDFC BANK LIMITED 4.59%
STATE BANK OF INDIA 4.02%
OIL & NATURAL GAS CORP LTD 2.81%
TATA CONSULTANCY SVS LTD 2.53%

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Hang Seng BeES ETF: India's First International ETF

The fixation of investing in Chinese markets with as low as Rs.10,000 combined with the growing popularity of Exchange Traded Funds (ETFs) marked the launch of the Hang Seng Benchmark Exchange Traded Scheme (NSE Symbol-HNGSNGBEES) in February this year. The fund is the brainchild of Benchmark Asset Management Company India Pvt. Ltd, which carved a niche for itself in the Indian Mutual Fund Industry by successfully launching first ETF in Asia (not only India) Nifty BeEs. The company is also credited with launching the Gold ETF first time in India.

The Benchmark's open-ended ETF tracks Hong Kong's Hang Seng index, one of the oldest and among the most popular indices on the Hong Kong stock exchange. The index currently comprises 42 stocks and can have a maximum of 50 stocks. The ETF, which is also investing in mutual funds, or ETFs that track the Hang Seng Index themselves, is the first international ETF to have emerged out of India.

The daily net asset value (NAV) of a single unit of the fund is arrived at, by calculating the daily Hang Seng index close multiplied by the currency rate of Hong Kong dollar-Indian rupee and divided by 100.


Management Of The Hang Seng BeES ETF

Name of Company: Benchmark Asset Management Co Pvt. Ltd.
Phone: 91-22-66512727
Website: www.benchmarkfunds.com
Address: 405,Raheja Chambers,
Mumbai 400 021
India

Inception Date: 15/03/2010
Fund Advisor(s): Benchmark Asset Management Co Pvt. Ltd.
Fund Manager: Vishal Jain
Manager Start Date: 15/02/2010
Fund Manager: Payal Kaipunjal
Manager Start Date: 15/02/2010

Top 5 Holdings Sector %

HSBC Holdings PLC Financial Services 13.70
China Mobile Ltd. Telecommunications 8.87
China Construction Bank Financial Services 7.08
Industrial And Commercial Bank O... Financial Services 6.23
China Life Insurance Company, Ltd. Financial Services 5.11



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Chance To Hop On The Indian Growth Bandwagon

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 Fund

ETF 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.