By Carl Delfeld of Chartwell ETF & ETFfolio
India's exchange-traded funds are proving volatile in a climate slowing growth, escalating government spending, and record inflation. After a sharp slide, India ETFs started to turn upward after its ruling coalition narrowly survived a test of leadership regarding the nuclear pact with the US but since then have demonstrated no clear trend.
James Fontanella-Khan of the Financial Times reports that India’s economy grew at it slowest rate in three years, as it struggles to control record-breaking high inflation and tighter credit and lower liquidity. Annual growth slowed to 7.9% in the first fiscal quarter of 2008 ended on June 30, significantly lower than the 8.8% rate reported in March.
India’s central bank recently sent its strongest signal yet that it will not tolerate high inflation, now running at nearly 12%, a 13-year-high, by announcing a larger than expected increase in its key lending rate with more hikes to come. India’s economic growth is being hampered by domestic supply-side constraints, particularly in infrastructure such as power, irrigation and transportation.
India’s agricultural output will also grow just 2%, down from a 4.5% expansion last year, due in part to an erratic monsoon, highlighting the challenge India faces in boosting agricultural productivity and meeting rising demand for food grains.
Industrial output is forecast to grow 7.5%, down from 8.5%, with industry still facing constraints from power shortages, while the service sector is projected to grow 9.6%, down from 10.8% last year. The Indian cabinet has approved an average 21% pay rise for 5 million federal employees and military personnel, the first revision of government salary scales for 12 years. Mr. P. Chidambaram, finance minister, estimates that the civil servants’ pay rise will cost Indian taxpayers $3.6bn this fiscal year.
Below are the ETFs tracking India's market:
iPath MSCI India ETN (INP): down 41% year-to-date
PowerShares India (PIN): down 20.5% since March 5th opening
WisdomTree India Earnings (EPI): down 25.9% since Feb. 26th launch
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