India exchange traded funds (ETFs) climbed to their highest level since February 2020 after government data showed that the subcontinent's gross domestic profit (GDP) grew by a record 20.1% year over year in the April-to-June quarter, driven mainly by a revival in manufacturing and agricultural activity.
"Agricultural output proved to be resilient, alongside better construction and manufacturing activity owing to less stringent localized restrictions versus the first COVID wave, while contact-intensive services lagged," said Radhika Rao, an economist at DBS Bank, per Reuters.
- Indian ETFs rose to their highest level since February 2020 after the country's GDP grew at a record rate, driven by a revival in manufacturing and agricultural activity.
- Look for suitable entry points in the WisdomTree India Earnings Fund (EPI) around $35.75, where the price may flip previous resistance into support near last Friday's initial breakout area.
- Aim to buy the iShares MSCI India Small-Cap ETF (SMIN) on dips to $54.60, where the price finds support from a horizontal trendline stretching back to early June.
While roughly in line with analysts' forecasts, the strong rebound in economic activity highlights India's resilience in recovering from its deadly second coronavirus wave sparked by the delta variant. Furthermore, Indian stocks also look well positioned to attract further foreign investment as an ongoing regulatory crackdown in China makes India a more viable investment destination. Traders who want a slightly alternative take on Indian stocks should check out the two ETFs outlined below.
WisdomTree India Earnings Fund (EPI)
Launched in 2008, the WisdomTree India Earnings Fund (EPI) has an investment mandate to track the performance of the WisdomTree India Earnings Index—a total market benchmark comprising Indian companies selected and weighted by earnings. Not surprisingly, the fund tilts toward value stocks, given this fundamental stock-picking methodology. Several well-known Indian companies in the ETF's comprehensive basket of 351 holdings include multinational information technology giant Infosys Limited (INFY) and one of the country's largest financial bellwethers, the State Bank of India (SBKFF).
Meanwhile, tight penny spreads and over $11 million in dollar volume liquidity make the fund compatible with most trading strategies. As of Sept. 1, 2021, EPI controls $868.72 million in net assets and is trading 25% higher since the start of the year. The ETF's modest 0.74% dividend yield mostly offsets its 0.84% annual management fee.
EPI shares broke above the top trendline of a rising wedge late last week, with gains accelerating Tuesday after the GDP release. However, those who want to buy the fund should consider waiting for a retracement, given the relative strength index (RSI) sits in overbought territory, increasing the probability of short-term profit-taking. Look for suitable entry points around $35.75, where the price may flip previous resistance into support near last Friday's initial breakout area.
A rising wedge moves upward with pivot highs and lows converging toward a single point known as the apex. A breakdown from the pattern often signals a change of direction from an uptrend to a downtrend.
iShares MSCI India Small-Cap ETF (SMIN)
The iShares MSCI India Small-Cap ETF (SMIN) aims to provide a similar return to the MSCI India Small Cap Index, offering traders and investors an interesting alternative to large-cap-focused funds. The underlying index, which the managers review quarterly and rebalance semi-annually, consists of the bottom 14% of companies traded on Indian stock markets that would otherwise be difficult to invest in. Sector exposure leans toward financials and basic materials with allocations of 18.55% and 16.55%, respectively.
Think about using limit orders rather than market orders to combat the fund's slightly wider spreads and sporadic daily volume of around 60,000 shares. As of Sept. 1, 2021, SMIN has assets under management (AUM) of $320.26 million, yields a tiny 0.09%, and is trading 37.12% year to date, outperforming the EPI fund by around 12%.
After grinding sideways for several weeks, the SMIN share price rallied sharply from the 50-day simple moving average (SMA) but now encounters significant resistance from last month's swing high, possibly setting the stage for a double top. Instead of chasing recent gains, traders should aim to buy the fund on dips to $54.60, where the price finds support from a horizontal line stretching back to early June.
A double top is an extremely bearish technical reversal pattern that forms after an asset reaches a high price two consecutive times with a moderate decline between the two highs. It is confirmed once the asset's price falls below a support level equal to the low between the two prior highs.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.