India ETFs Bounce at Key Technical Support

Jitters over India's upcoming election have seen Indian stocks sputter into 2019 with the country's benchmark S&P BSE Sensex Index down 0.90% year to date (YTD), while the nation's large-cap index, the NSE Nifty 50, is off 1.11% for the year as of Feb. 21, 2019. Over the same period, the iShares MSCI Emerging Markets ETF (EEM), an exchange-traded fund that tracks emerging markets, has returned nearly 9% YTD.

Although polls suggest that incumbent Prime Minister Narendra Modi is likely to be re-elected in the April and May general elections, as reported by The Times of India, investors appear hesitant to commit to Indian stocks. In addition to election uncertainty, investors are also trying to digest a surprise interest rate cut earlier this month by the Reserve Bank of India and debt concerns looming over conglomerate companies IL&FS Transportation Networks Limited (IL&FSTRANS.NS) and Essel Group.

Despite the indecision, some analysts believe that the elections won't impede India's growth. "The elections can only boost or dampen sentiment depending on the news flow, but they won't massively impact the underlying earnings and economic growth of the country," said Anand Radhakrishnan, chief investment officer at Franklin Templeton Asset Management India, per Bloomberg.

Indian ETFs rallied from technical support in Wednesday's trading session, indicating a return of buying interest in anticipation of a likely Modi victory. Traders can gain exposure to Indian stocks using these three ETFs. Let's explore several swing trading ideas.

iShares MSCI India ETF (INDA)

Created in 2012, the iShares MSCI India ETF (INDA) aims to track the investment results of the MSCI India Index, which covers the top 85% of firms across the Indian securities market. The fund tilts exposure toward the financials and technology sectors, with respective allocations of 23.25% and 17.22%. A razor-thin average spread of 0.03% and daily share volume of over 4.5 million shares makes this product ideal for short-term tactical traders. Trading at $32.07 with assets under management (AUM) of $4.64 billion and offering a dividend yield of nearly 1%, the ETF is down 5.07% YTD as of Feb. 21, 2019. INDA charges a management fee of 0.68%, slightly below the 0.75% industry average.

After recovering somewhat in the fourth quarter of 2018, INDA's share price has resumed its bearish action in early 2019. Despite the lackluster start to the year, a rare three-bar Japanese candlestick chart pattern known as a "bullish abandoned baby" has formed on an uptrend line that extends back to late October, which raises the probability of an upside reversal. Traders who take a long position should book profits between $33 and $33.50, where the price may find resistance from the 200-day simple moving average (SMA) and a horizontal line. Consider placing a stop-loss order beneath the second candle's low in the three-bar pattern.

Chart depicting the share price of the iShares MSCI India ETF (INDA)

Direxion Daily MSCI India Bull 3x ETF (INDL)

With net assets of more than $85 million, the Direxion Daily MSCI India Bull 3x ETF (INDL) seeks to provide three times the daily return of the MSCI India Index, effectively making it a leveraged version of the first fund discussed. An average spread of 0.31% makes the fund more suited to swing traders who can let winning trades run to cover the higher trading costs. Getting in and out of positions shouldn't be an issue given the ETF's average daily dollar volume of $2.58 million. As of Feb. 21, 2019, INDL has a YTD return of -38.49% and pays a 0.19% dividend yield.

INDL's share price rallied 46% between late October and late December last year as buyers looked to emerging markets for new opportunities. Since that time, buying interest has waned, with money flooding back into other emerging markets and U.S. growth stocks on hopes of a trade deal between the United States and China. The ETF caught a bid in Wednesday's trading session, jumping almost 4% off a four-month trendline. Those who buy at the current price should consider setting a profit target at $70 resistance with a protective stop positioned under this month's low at $55.43, offering traders a healthy risk/reward ratio of over 1:3.5.

Chart depicting the share price of the Direxion Daily MSCI India Bull 3x ETF (INDL)

WisdomTree India Earnings ETF (EPI)

Launched back in 2008, the WisdomTree India Earnings ETF (EPI) attempts to provide similar returns to the WisdomTree India Earnings Index. The fund selects companies using a fundamental approach based on earnings in the prior fiscal year, adjusted for the availability of Indian stocks to foreign ownership. It concentrates sector exposure toward financials (23.78%), energy (18.64%) and technology (15.53%). Deep liquidity and a tight 0.04% average spread more than make up for EPI's pricey 0.84% expense ratio, especially for short-term traders. The ETF, with AUM of $1.36 billion and yielding 1.22%, is down 6.77% YTD as of Feb. 21, 2019.

In line with the other India ETF charts above, EPI's price has failed to attract buying interest so far this year. In saying that, the bulls returned in force yesterday, pushing the fund up 1.38% on its heaviest volume since July 2018, with over 6 million shares changing hands. Swing traders who take a position here should bank profits on a move up to the $25 level, where the price may consolidate around the December swing high. If the fund reverses course and falls below the trendline stretching back to late October, it would be wise to close out any open trades, as this invalidates the setup.

Chart depicting the share price of the WisdomTree India Earnings ETF (EPI)
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