India ETFs Hit Record High Ahead of Central Bank Meeting

Local investors purchased $2.5 billion of Indian stocks in July

India's benchmark stock index—the NSE Nifty 50—crossed 16,000 for the first time Tuesday as investors bet that the country's central bank later this week will leave interest rates at historic lows to facilitate growth after a deadly wave of coronavirus and months of economically devastating lockdowns.

Key Takeaways

  • India's Nifty 50 crossed 16,000 for the first time as investors bet on accommodative central bank policy.
  • iShares MSCI India ETF (INDA) shares broke out to a new all-time high, which may trigger additional buying as traders play the bullish momentum.
  • iShares India 50 ETF (INDY) shares have tracked the 50-day moving average before breaking away to close at a record high.

Over the past month, domestic interest has underpinned recent market gains. According to Bloomberg, local mutual funds and insurance firms purchased about $2.5 billion of Indian stocks in July, helping offset $1.7 billion of foreign outflows. Moreover, the Securities and Exchange Board of India (SEBI) reported a 35% increase of new retail accounts opened in the financial year ended March.

Traders can gain exposure to Indian stocks through the two U.S.-listed exchange traded funds (ETFs) outlined below. Let's review the details of each fund and point out possible trading opportunities using technical analysis.

iShares MSCI India ETF (INDA)

With assets under management (AUM) nudging toward $6 billion, the iShares MSCI India ETF (INDA) seeks to track the performance of the MSCI India Index—a market-cap-weighted benchmark comprising the top 85% of companies traded on Indian stock exchanges. Financial and technology command the largest sector allocations, receiving weightings of 25.91% and 18.23%, respectively. Trading-wise, tight penny spreads and a daily volume of 2.6 million shares minimize slippage costs. Meanwhile, a modest 0.69% management fee makes longer-term holds an option. As of Aug. 4, 2021, INDA issues a small 0.17% yield and had added 13.9% since the start of the year.

Not surprisingly, the fund's price has traded mostly sideways for the past five months after logging a gain of 114% between the March pandemic-induced low and March 2021. Tuesday's breakout to an all-time high may trigger additional buying in the days ahead as traders play the bullish momentum. Those who take a position should think about using a fast period moving average (MA), such as a 10-day MA, as a trailing stop. To use this technique, remain in the trade until the ETF's price closes below the indicator.

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

An all-time high is the highest historical price level reached by a security, commodity, or index during its trading history.

iShares India 50 ETF (INDY)

The iShares India 50 ETF (INDY) aims to generate a return that generally corresponds to the Nifty 50 Index, effectively providing investors with exposure to 50 leading blue-chip companies traded on the National Stock Exchange of India (NSE). Some of the better-known Indian companies in the fund's basket include Reliance Industries Limited (RELIANCE.NS), HDFC Bank Limited (HDB), and Infosys Limited (INFY). Average daily dollar volume liquidity of around $1.5 million and a 0.17% bid/ask spread makes the ETF a favorite among active traders. INDY holds net assets totaling $682.22 million, carries a 0.93% expense ratio, and has jumped 13.03% year to date as of Aug. 4, 2021.

INDY shares have traded within a narrow two-point range since early June, with neither the bulls nor bears able to gain control of the price action. More recently, the fund has tracked the 50-day MA before breaking away Tuesday to close at a record high. Active traders who buy the breakout should consider letting profits run by using a trailing bar stop. To do this, remain in the trade until the price closes beneath the current day's low or the previous day's low, whichever is lower.

Chart depicting the share price of the iShares India 50 ETF (INDY)

For stocks, one point equals one dollar. So when you hear that a stock has lost or gained X number of points, it is the same as saying the stock price has lost or gained X number of dollars.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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