Inflows into India-focused equity ETFs have turned positive over the last week in anticipation of further cuts to interest rates and an uptick in economic growth.
Indian stocks replicated by ETFs have gained more than 15% this year, and have collected global inflows of more than $1.3 billion, as shown by TrackInsight data. The same asset class shed around $60 million in the first few weeks of July, but has gained a net $6 million in the last month.
The Indian Central Bank is expected to lower rates from its current position of 6.25%, the first time it will have cut rates from 6.5% in October.
A second cut is expected due to the release of the latest inflation figures in India of around 4%, the slowest rate in over five years.
Prime Minister Narendra Modi has also released a package of tax reforms in early July to attract foreign investment.
A cut in August is likely to be the last in the current fiscal year as analysts predict inflation seems to be bottoming out.
India ETF options
There are 11 ETFs listed in the US that focus on Indian equities. The top performing broad market fund over the past 12 months is the iShares MSCI India Small Cap ETF (SMIN) at close to 35%.
For those willing to invest in riskier small caps, the VanEck Vectors India Small-Cap Index ETF (SCIF) is up almost 36% in the same period.
The asset class remains quite small in terms of assets under management, therefore the average total expense ratio for Indian ETFs remains more than 0.80%.
Economic growth on the horizon
Indian stocks are trading at a record high, partly due to anticipation of accelerating economic growth.
As reported by Global Risk Insights, India is expected to grow from 7.1% to 7.3%, therefore foreign investor interest is likely to continue to grow.
The country remains the strongest growing major economy and has now outpaced that of China for more than 10 years.
Consider FX hedged option
Growth has also had an impact on its currency. Since the New Year, the rupee has increased more than 5% in value against the US dollar.
The risk of FX fluctuation means US-based investors might consider a currency hedged option. The iShares Currency Hedged MSCI Emerging Markets ETF (HEEM) has around 9% exposure to India.