Tracking India's stock rally with ETFs and ETNs

BOSTON (MarketWatch) -- Global investors were greeted with a massive rally in India's stock market to start the week after the Congress Party-led alliance scored a victory in the emerging market country's general election.

Investors are betting in a big way that the ruling party's win can provide a boost to India's economy, and in their haste to snap up shares they triggered market circuit-breakers Monday as stock benchmarks surged to double-digit percentage gains.

"I think the market still has the potential to go up by another 10% to 15%," said Deven Choksey, managing director at K.R. Choksey Shares & Securities in Mumbai. See earlier coverage.

For investors who don't have the time or means to purchase individual Indian stocks, exchange-traded funds and notes can provide a broad-based, indexed approach for catching a prolonged rally.



The Indian-stock ETFs and ETNs enjoyed gains of more than 20% on Monday as the U.S.-listed funds joined in the buying frenzy. Exchange-traded portfolios following overseas market trade in the U.S. even while the underlying markets are closed due to time-zone differences. As such, some traders use them as a rough gauge of fair value after international markets cease trading.

Choices include Barclays iPath MSCI Index Index ETN /quotes/comstock/13*!inp/quotes/nls/inp (INP 48.19, -0.84, -1.71%) , PowerShares India Portfolio /quotes/comstock/13*!pin/quotes/nls/pin (PIN 17.74, -0.44, -2.42%) and WisdomTree India Earnings Fund /quotes/comstock/13*!epi/quotes/nls/epi (EPI 16.88, -0.28, -1.63%) . Also, WisdomTree Dreyfus Indian Rupee Fund /quotes/comstock/13*!icn/quotes/nls/icn (ICN 24.28, +0.30, +1.25%) follows the local currency, while First Trust ISE ChIndia Index Fund /quotes/comstock/13*!fni/quotes/nls/fni (FNI 15.72, -0.07, -0.44%) blends Indian and Chinese stocks in a single wrapper.


The Barclays product is an ETN, which means unlike an ETF, it carries issuer credit risk. The Barclays iPath MSCI Index ETN is listed on the NYSE Arca and has more than $500 million in total assets.

At the end of April, the portfolio had 59 stocks, according to investment researcher Morningstar Inc. Top holdings were Reliance Industries, Infosys Technologies, ICICI Bank, Housing Development Finance Corp. and HDFC Bank. Not including Monday's surge, the ETN was up about 25% so far in 2009, but was off more than 45% over the trailing 12 months.

The PowerShares India Portfolio is an ETF launched in March of 2008. The tracking index is designed as a broad gauge of stocks listed on India's Bombay Stock Exchange and the National Stock Exchange. The fund has an expense ratio of 0.78%, and since it trades like an individual stock, it can be sold short. Its largest sector holdings are energy, at nearly 29%, followed by information technology and financials.
/quotes/comstock/13*!pin/quotes/nls/pin PIN 17.74, -0.44, -2.42%
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WisdomTree Investments Inc. /quotes/comstock/11i!wsdt (WSDT 1.15, 0.00, 0.00%) offers a pair of India-themed ETFs. The WisdomTree India Earnings Fund weights individual stocks by their earnings yield, rather than market capitalization. It levies fees of 0.88%, and the portfolio has risen almost 23% for the year-to-date period through Monday, according to Morningstar.

Meanwhile, WisdomTree also oversees a currency ETF pegged to the Indian rupee. With an expense ratio of 0.45%, it seeks to give investors a yield comparable to local money-market rates available to foreign investors. It also provides exposure to the movement of the rupee against the U.S. greenback.

However, WisdomTree points out that the ETF is not a money market fund and isn't required to maintain a constant share price. Some U.S. money market funds "broke the buck," or fell below a net asset value of $1, during the credit crisis.

WisdomTree Dreyfus Indian Rupee Fund gained nearly 3% on Monday and hit a session high of $24.58 -- its 52-week high is $25.99.