India ETFs: More Run Ahead?

India ETFs have been on a tear lately on economic optimism. Solid GDP data defying demonetization, the victory of the pro-growth prime minister’s party in some state elections, implementation of goods-and-services tax or GST from July, a weaker greenback and still-solid inflows from retail investors are driving Indian stocks (read: ETF Winners & Losers of April 2017).

In the last three months (as of May 15, 2017), iShares India 50 (INDY - Free Report) rose over 12.6% against 2.7% returns offered by the S&P 500-based ETF (SPY - Free Report) . On top it, on May 16, 2017, the key Indian equity gauge Sensex hit a record high, marking the third high in five sessions. Primarily the reason being chances of a good monsoon, which should give a big time boost to an agrarian economy like India. Plus, improving corporate earnings can play as another tailwind.

Better Monsoon Expected This Year

The Indian Meteorological Department (IMD) projected above-average monsoon for this year, which can even lead to 100% rainfall. If this turns out correct, the country it would see profuse rainfall for the fourth time in 13 years, as per the source.

In the Indian market, excess rainfall is viewed as market-friendly. There were average rains in 2016 in India following two consecutive years of drought. So, if the country receives plentiful rains, the market has high chances of bouncing back (read: Buffett Endorses India: Do ETFs & Stocks Have More Upside?).

Monetary Policy Easing?

As per the source, if a heavy monsoon benefits rural areas, it will give a leeway to the Reserve Bank of India (RBI) to slash interest rates in the coming days. This is because prospects of good monsoon may keep food inflation low. This can give India Investing a boost.

Earnings Recovery on the Horizon?

As per an article published on Bloomberg in late April, “seven out of the nine Nifty-listed companies have either met or exceeded their earnings expectations for the January-March quarter.” Though it is too early to take a call over earnings in India, the trend can be seen as decent if we rule out the adverse impact of demonetization (which weighed on demand to some extent due to cash crunch) enacted in November (read: India ETFs Tangled Between Note Demonetization & Trump Win). 

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