India’s Stocks on the Rise, Economy to Accelerate: Two ETFs Get You There

In the five years through 2011 India’s economy delivered on its promise as an emerging growth bellwether, rising nearly 125%. But 2012 has been the year of the speed bump, with annualized GDP growth in India slowing to under 6% through the third quarter, while inflation has spiked to more than 10%.

In April Standard & Poor’s sent the Indian stock market into a tailspin when it warned that India could get bumped down to junk status -- it would be the first BRIC to sink below investment grade -- if it didn’t clean up its fiscal picture. Even China, dealing with its own hard-landing/soft-landing conundrum performed better.

EPI Chart

EPI data by YCharts

Message delivered. Over the past few months India’s government -- with a new finance minister in place -- has announced a series of economic reforms that is cheering Wall Street. Among the welcome changes is a vow to ease foreign investment restriction in key market segments including retail and aviation.

Goldman Sachs (GS) recently raised its call on the Indian stock market from marketweight to overweight. Goldman expects GDP to rev back up to a 7%+ growth rate in the coming years. In a note to clients, reported by the Wall Street Journal, Goldman surmised, “In India we feel the worst of the policy issues are behind us, confidence in the new finance minister and his team is strong and, although India still has many difficult issues to deal with, things are improving at the margin.”

JPMorgan Chase (JPM) is on board as well. India is its BRIC of choice for 2013; the firm is underweight China.

While S&P’s ratings desk has yet to weigh in on how it views the recent reforms, Moody’s recently stepped up and reiterated India’s investment grade rating remains “stable.” Since mid September when the first reforms were announced, Indian stocks have rallied about 7%.

The $1.2 billion Wisdom Tree India ETF (EPI) and the $420 million PowerShares India ETF (PIN) are the two most liquid ways to pick up diversified exposure to India. But as the chart below makes clear, investing in any BRIC, no matter the bullish sentiment, is an exercise in withstanding plenty of volatility in the pursuit of reward.

EPI Chart

EPI data by YCharts

Carla Fried, a senior contributing editor at ycharts.com, has covered investing for more than 25 years. Her work appears in The New York Times, Bloomberg.com and Money Magazine. She can be reached at editor@ycharts.com.

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