For traders with a global perspective, India has proven to be one of the brightest spots so far in 2014. By examining the chart of the PowerShares India Portfolio ETF (PIN) shown below, you’ll find that it has risen by 20.83% so far this year and that it is trading near the upper end of its 52-week range. From a technical perspective, it is interesting to see how the recent pullback has sent the price toward the support of its 50-day moving average. Many traders will use this level when determining where to set stop-loss orders also taking into account a reverse in the long-term uptrend will not occur until the price closes below the 200-day moving average (red line). Given the strong uptrend, now could be the ideal time to increase exposure to this dynamic region. (For more, check out An Introduction To The Indian Stock Market.) 

PIN screenshot

Investing In American Depositary Receipts

As many of you likely know, there are a host of challenges when a trader forms an interest in buying shares in companies from foreign countries. In many cases, it is impossible to gain exposure to the biggest names unless the trader has filled out proper documentation or has an account in the given country. (For more, check out Investing Beyond Your Borders) Luckily, the invention of exchange-traded funds and American Depositary Receipts has changed the game for the average trader. For those who don’t know, an exchange-traded fund is essentially a basket of stocks similar to a mutual fund. An ETF trades on the major U.S. exchanges like a regular stock. The details for picking the components and how the fund is structured are left to a manager. American Depositary Receipts, also known as ADRs, are becoming more popular and are essentially securities that represent shares of non-U.S. companies that trade in the U.S. financial markets.

For those who don’t follow the PowerShares India Portfolio ETF (PIN), you’ll be interested to learn that the fund holds 50 positions in securities that comprise ADRs and foreign shares of 50 of the largest Indian stocks listed on the two major Indian exchanges. The ETF carries a 0.82% total expense ratio and consists of companies in sectors ranging from energy, information technology, health services, financial services, consumer products, heavy industry and more.  It may prove beneficial for traders to examine the top five holdings of PIN shown below in order to create a watch list of potential investment candidates. (For more, see Ways To Play India.)

Company

Weight (%)

Reliance Industries Ltd.

9.42

Infosys Ltd. (INFY)

8.96

Oil & Natural Gas Corp.

8.87

HDFC Bank Ltd. (HDB)

5.89

Tata Consultancy Services Ltd.

4.62

A Closer Look At The Top Holdings

Most of the holdings shown in the table above trade on Indian stock exchanges and can be difficult for the average U.S. trader to invest in. However, the strength and quality of the names in the table is one of the reasons why exchange-traded funds such as PIN are becoming the go-to tool of choice for investing in foreign countries such as India. If a trader wants to place an even more specific bet on Indian stocks, then ADRs such as INFY and HDFC could be worth a closer look.

As you can see from the chart of Infosys shown below, the price has recently moved above a key level of support/resistance (blue dotted line). This bullish move suggests that the momentum will continue to be in the upward direction and that a move similar to the previous swing high of $62.37 is likely. (For more on this topic, check out Invest In India Through ETFs.)

INFY screen shot

The Bottom Line

Investing directly in foreign companies can be quite difficult. Luckily, the invention of exchange-traded funds and American Depositary Receipts has changed the game for the average investor. As mentioned above, it is a wise idea to examine the key components of any exchange-traded funds for ideas, and in some cases the ETF itself is the best way to gain exposure to the underlying components. Given the robust economy, economic scale and strong performance so far this year, India could be an ideal place for investors looking on where to start putting their money. Based on the analysis above, the PowerShares India Portfolio ETF (PIN) could prove to be an interesting choice.


Tickers in this Article: PIN, INFY, HDB

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