India ETFs Jump Following Moody's Comments
By ETF Professor | November 28, 2012 5:52 AM EST
Shares of the WisdomTree India Earnings Fund (NYSE: EPI), the largest India ETF by assets, traded higher by 1.1 percent Tuesday after Moody's Investors Service reiterated a stable outlook on India's sovereign debt rating. Moody's also affirmed a Baa3 credit rating for India, which is one notch above non-investment grade status.
The news from Moody's could not come at a better time for India. Already home to the worst credit rating of the four BRIC nations, India is fighting to keep its investment-grade rating. The loss of that rating would lead to not only higher borrowing costs, but a probable plunge in major India ETFs such as EPI and the PowerShares India Portfolio (NYSE: PIN).
The PowerShares India Portfolio and the iShares S&P India Nifty 50 Index Fund (NASDAQ: INDY) are also trading higher on the Moody's news. PIN is up nearly 0.9 percent while INDY has gained 0.7 percent on volume that has already surpassed the daily average.
Moody's backing of the stable outlook and India's investment-grade status could serve to calm investor fears that the country's departure to junk territory is imminent. Still, it must be noted that earlier this year Standard & Poor's lowered its outlook on India to negative from stable. S&P rates India's debt BBB-, the lowest investment-grade rating on its scale. Fitch Ratings also has a BBB- rating with a negative outlook on India, Asia's third-largest economy.
"The sovereign rating is supported by credit strengths which include a large, diverse economy, strong GDP growth as well as savings, and investment rates that exceed emerging market averages," Moody's said in a report.
Conversely, the Moody's report was not entirely positive. The ratings agency criticized India's high government deficit and debt ratios, problems with inflation and decrepit infrastructure, among other issues.
India's infrastructure, arguably the worst of the BRIC nations and perhaps among the worst in the broader emerging markets universe, was negatively displayed earlier this when massive blackouts swept the nation, leaving as many as 600 million citizens without electricity.
Of the country-specific ETFs devoted to the infrastructure sub-sector, the EGShares India Infrastructure ETF (NYSE: INXX) has outperformed the comparable Brazil and China funds by surprisingly wide margins this year. However, since those three ETFs debuted over two years ago, INXX is by far the worst performer with a loss of nearly 31 percent.
The need for better infrastructure puts India in a bind because it is frequently cited as a black mark on the economy, but with the country India is grappling to keep its fiscal deficit to 5.3 percent of GDP in a bid to keep its investment-grade rating, increased spending may not be forthcoming.
The bottom line is quite clear. With heavy allocations to the country's financial services and energy sectors, EPI and INDY can ill afford Indian debt to be rated as junk. Said differently, the more India can do to shore up its tenuous investment-grade rating, the better it is for India ETFs.
For more on India ETFs, click here.
Most Popular Slideshows
- 2014 MLB World Series Game 1: San Francisco Giants 7, Kansas City Royals 1 [PHOTOS]
- 2014 MLB World Series - Game 2: Kansas City Royals 7, San Francisco Giants 2 [PHOTOS]
- NFL Thursday Recap - Denver Broncos 35, San Diego Chargers 21: Peyton Manning Has 3 TDs In Easy Win [PHOTOS]
- 2014 MLB World Series Game 3: Kansas City Royals 3, San Francisco Giants 2 [PHOTOS]
Join the Conversation
- New Zealand Economy Benefits From Australia's Big Investments; Kiwi Down After RNBZ Comments
- ETF Outlook for Thursday, January 2 (FEZ, FXI, SPY, XHB)
- January Second Trading: Always Interesting
- 13 Things Investors Learned In 2013 - Part II
- Are Diversity and Quality the Way to Profit from the Rebound in Gold and Coal?
- Xiaomi Redmi 1S vs. Sharp Aquos Crystal – Specifications, Features And Price Showdown
- Boy Stoned To Death For Alleged Rape, Victim Receives Dowry From Militants
- Verizon Motorola Droid Turbo Leaked Live Images Surfaces, Scheduled To Get Unveiled On Oct 28
- Update HTC One M7 with LG G2 with Android 4.4.2 as Sprint OTA: Fixes and Installation
- Russia is Creating Underwater Combat Robots to Protect its Arctic Territories
- ‘Lone Wolf’ Attack on Canada Parliament Hill Could be ISIS-Related
- U.S. Targets Buyers of ISIS Oil, Threatens Sanctions