ETF Talk: India’s New Central Bank Chief Offers Hope

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

The economic woes of India that have caused the stock market there to hit a three-year low may be on the verge of changing, as the country’s Reserve Bank welcomes a new leader to assist the country in escaping its doldrums. Under the watch of the Reserve Bank of India’s previous Governor Duvvuri Subbarao, the nation’s economy has been weak and unrewarding to investors.

But hope now is on the horizon.

The new leader of India’s central bank is Raghuram Rajan, a U.S.-educated former International Monetary Fund (IMF) chief economist. His appointment could be good news for investors in the WisdomTree India Earnings Fund (EPI). The outgoing governor of India’s central bank has been accused of monetary missteps, a problem that should not plague Rajan, who showed his astuteness when he previously warned that the 2003-2006 U.S. housing bubble was unsustainable.

The new governor could help to create a monetary climate in India that will offer enormous opportunities for investors, especially as Indian ETFs bottom out. The WisdomTree India Earnings Fund (EPI) has fallen significantly in the past year and could be a good turnaround candidate. This non-diversified fund seeks to track, before fees and expenses, the price and yield performance of an Indian index which is made up of companies incorporated and traded in India that are profitable and are eligible to be purchased by foreign investors.

As you can see from the chart below, this ETF has lost 13.48% in the last year and 25.09% since the beginning of 2013. EPI is at its lowest price since 2009, and that could make it a bargain here if the shares are capable of sustaining a rally. This fund also offers a dividend yield of 1.13% for investors interested in additional income.


EPI’s top 10 holdings comprise 45.84% of the fund’s total assets. Three of these top 10 positions are in the banking industry, including the State Bank of India, with 1.87% of this ETF’s assets. The top five of this ETF’s companies, in terms of assets held, are: Reliance Industries Ltd., 9.54%; Infosys Ltd., 7.74%; ONG Corp Ltd, 6.74%; Tata Motors, Ltd., 4.97%; and Housing Development Finance Co, 4.61%.

As you might expect after reading the list of holdings, this ETF’s largest sector is financial services, to which EPI devotes 22.20% of its assets. Next are the energy sector, 19.56%, and technology, 17.67%. Smaller investments are found in a variety of other sectors, including consumer cyclical, basic materials, consumer defensive, healthcare, industrials, utilities, communication services and real estate.

Considering that this ETF, and the country that it invests in, seem to be bottoming out, I will be watching this fund in the weeks ahead. Of course, the financial success of India, and therefore EPI, will be intertwined with India’s new Reserve Bank governor, who will be expected to help reverse the situation handed to him by his predecessor. If all goes well, EPI could begin to rise again before long.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to email me. You just may see your question answered in a future ETF Talk.

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