Sparkling India ETFs to Light Up Your Portfolio - ETF News And Commentary

The Indian stock market has prospered since last Diwali on optimism that the new government will stimulate growth in Asia's third-largest economy. In fact, the BSE Sensex gained over 29% over the past year while the National Stock Exchange index (Nifty) fetched higher returns of over 35%.

These gains are definitely solid and investors are again anticipating another banner year. This is especially true as a slew of economic reforms in the oil & gas and coal sectors announced by the government early in the week will continue to drive the stocks higher. Further, the optimism and fervor surrounding the festival of Diwali and the old belief of ‘Muhurat' trading are attracting capital inflows to the country (read:

).

Muhurat trading is the auspicious stock market trading for an hour on the day of Diwali that according to Hindu belief protects individuals from evil and brings prosperity throughout the year. Looking back, the BSE Sensex has delivered

during muhurat trading in eight out of past 10 years, suggesting smooth trading this year as well. Ahead of this Diwali which falls on October 23, the major Indian benchmarks are already up over 2% this week.

Several India ETFs are poised to surge in the coming days on the festive mood and religious customs. Below, we have highlighted three funds that could brighten investors' portfolio with enhanced returns. These products have generated excellent returns over the trailing one-year period (see:

).

This product provides exposure to the small cap segment of the broad Indian stock market by tracking the MSCI India Small Cap Index. Holding 146 securities in its basket, it is widely spread out across number of securities with none holding more than 2.71% of assets. Financials takes the top spot at 24.6%, followed by consumer discretionary (20.3%), industrial (16.1%) and materials (11.1%)

Though the fund is unpopular and illiquid with AUM of $15.3 million and average daily volume of 12,000 shares, it surged over 70% over the trailing one-year period. The product charges 71 bps in annual fees from investors.  

This ETF targets the consumer industry of India and follows the Indxx India Consumer Index. It holds 30 stocks in its basket and has amassed $8.9 million in its asset base. The fund trades in a paltry volume of 5,000 shares, suggesting additional cost in the form of wide bid/ask spread beyond the expense ratio of 0.89%.

The product is a bit concentrated across various components with the largest allocation going to MRF, Motherson Sumi Systems and Bosch Ltd which collectively make up for 17.7% of assets. From a sector look, automobiles and parts occupy the top position with 37.5% share while personal goods and industrial engineering round off the next two places at 27.1% and 15.4%, respectively. INCO has gained 40.1% over the past year (read:

).

This product tracks the WisdomTree India Earnings Index, holding 231 securities in its basket. Reliance Industries, Infosys and Housing Development Finance are the top three holdings with a combined 22.4% of assets. About half of the portfolio is dominated by financials, followed by information technology (37.8%) and energy (34.6%).

EPI is the largest and most popular ETF targeting India with AUM of over $1.9 billion and average trading volume of around 4.5 million shares. Expense ratio came in at 0.83%. The fund was up 34.5% over the past year (read:

).

These products are clearly outpacing the broad U.S. market fund

, emerging Asia Pacific fund

and the broad emerging market fund

by wide margins. This trend is likely to continue over the next one year given new reforms and improving economic conditions.

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