India ETFs Climb as Investors Look Beyond Coronavirus

Investors look past a cycle of slashed earnings estimates

Indian stocks continue to grind higher, despite months of stay-at-home orders and extended lockdowns across much of the South East Asian nation. While the closely watched Sensex Index still trades comfortably below its pre-pandemic high, it has clawed back 44% since its March low as investors bet on a longer-term recovery.

According to Kotak Mahindra Asset Management Managing Director Nilesh Shah, Indian stocks are pricing in higher levels of foreign investment, additional fiscal and monetary stimulus measures, and expectations of stabilizing economic activity in the wake of a successful COVID-19 vaccine.

Others have taken a more cautious view. HSBC downgraded Indian stocks last week, believing that much of the recent rally has already played out. The British investment bank also warned of further downward earnings revisions. "We believe the downgrade cycle is not over yet and believe ample earnings downgrade risks exist for Indian equities," the bank wrote in a note cited by CNBC.

Traders can gain access to Indian stocks through the three exchange-traded funds (ETFs) discussed below. Let's take a more detailed look at the metrics of each fund and turn to the charts to identify possible trading opportunities.

iShares MSCI India ETF (INDA)

Launched in 2012, the iShares MSCI India ETF (INDA) seeks to provide similar investment results to the MSCI India Index. Financials represent the fund's top sector exposure with a weighting of 23.05%, followed by technology at 16.35% and energy at 16.03%. Trading wise, a daily turnover of more than 5 million shares and narrow penny spreads keep transaction costs low. INDA has assets under management (AUM) of $2.71 billion, yields 0.37%, and is trading 11.57% lower year to date (YTD) as of July 20, 2020. Performance has improved significantly over the past three months, with the fund gaining almost 25%. The ETF carries a 0.69% management fee.

The shares spent the first two weeks of July consolidating below a key horizontal line at $31 and the 200-day simple moving average (SMA) before breaking above both indicators in Friday's trading session. Those who position for further upside should consider booking profits at either $33.85 or $36 – both crucial resistance levels. Guard against a sudden reversal by placing a stop-loss order below the 200-day SMA.

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

Direxion Daily MSCI India Bull 3x Shares (INDL)

The Direxion Daily MSCI India Bull 3x Shares (INDL) aims to return three times the daily performance of the MSCI India Index. To do this, the ETF, which has a 1.33% expense ratio, invests its $83.18 million asset base in securities that make up the underlying index and uses derivative products to achieve its geared exposure. An average daily dollar volume of almost $7 million provides ample liquidity, although traders should consider using limit orders to combat the fund's slightly wider bid-ask spreads. Since the start of the year, INDL has slumped 63.73%, but it has recovered 72% over the past three months as of July 20, 2020.

Price broke out above the top trendline of a four-month rising wedge on Friday in a move that could fuel further momentum-based buying in the coming weeks. Active traders who buy at these levels should look for a move up to the 200-day SMA but cut losses if the ETF fails to hold above $25.

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

Invesco India ETF (PIN)

With net assets totaling $85 million, the Invesco India ETF (PIN) has an objective to offer returns that closely match the FTSE India Quality and Yield Select Index. The benchmark tracks a basket of stocks traded on the National Stock Exchange of India (NSE), screened for yield and quality characteristics. Indian multinational conglomerate Reliance Industries Limited (RELIANCE.NS) commands to top single stock allocation at 10.71%. Traders need to be mindful of the ETF's trading costs, given its average 0.32% spread and daily volume of just over 30,000 shares. As of July 20, 2020, the fund issues a 0.73% dividend yield and has returned 25.45% since late April. It has fallen by nearly 7% YTD.

PIN crossed back above the 200-day SMA in early July before consolidating for several weeks. Bulls regained control of proceedings on Friday, pushing the shares to a level not seen since late February. Those who decide to play the breakout should consider setting a take-profit order around $20 – an area on the chart that finds significant resistance from the top trendline of a previous trading range. Limit downside by placing a stop beneath the July low at $17.61.

Chart depicting the share price of the Invesco India ETF (PIN)
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