U.S. investment bank Goldman Sachs Group downgraded Indian stocks to "marketweight" from "overweight" Thursday, citing a delayed recovery from the COVID-19 pandemic and elevated valuations for the rating change. The downgrade comes after the South Asian nation extended its lockdown of 1.3 billion people until May 3 amid the country reporting more than 10,000 infections and nearly 340 deaths.
Goldman Sachs also trimmed its target for the country's benchmark stock index – the Nifty – by 11% to 9,600 on lower earnings expectations. The brokerage firm expects Indian company profits to decline 13% year over year in 2020 before recovering 23% in 2021 as economic conditions stabilize. Despite Goldman's more conservative outlook, its target for the index still implies a 3.6% premium to current levels.
U.S.-based investors can gain access to the country's stocks through the three exchange-traded funds (ETFs) outlined below. Let's take a closer look at the metrics of each fund and discuss important technical levels to watch.
iShares MSCI India ETF (INDA)
Launched in 2012, the iShares MSCI India ETF (INDA) aims to track the investment results of the MSCI India Index – a market-cap weighted benchmark comprising the top 85% of companies listed on Indian stock exchanges. Financials and technology take the top sector weightings, with respective allocations of 30.39% and 15.98%. Meanwhile, a daily turnover of 8 million shares, along with an average penny spread and a 0.69% expense ratio, keep trading/holding costs competitive. INDA has an enormous $2.72 billion asset base, issues a 1.44% dividend yield, and is trading almost 30% lower on the year as of April 17, 2020.
The ETF's share price slumped as much as 42% amid the coronavirus-induced sell-off but has since stabilized and now trades 22% above its March 23 low. A breakout above a two-week ascending triangle could trigger a rally to $31, where the price is likely to find resistance from the lower trendline of a previous trading range. Conversely, a breakdown from the pattern could see the fund test last month's low at $20.48.
Direxion Daily MSCI India Bull 3x Shares (INDL)
With net assets of $29.02 million, the Direxion Daily MSCI India Bull 3x Shares (INDL) has an objective to return three times the daily performance of the MSCI India Index, effectively making the fund a leveraged version of INDA. The geared exposure makes the decade-old ETF a suitable choice for those who want to take an aggressive bullish bet on Indian multinational conglomerates like Reliance Industries Limited (RELIANCE.NS) and Infosys Limited (INFY). Traders should consider using limit orders to combat the fund's lower trading volumes and wider spreads. As of April 17, 2020, INDL yields 2.85%, charges a 1.33% management fee, and has returned -79.48% year to date (YTD).
Since bottoming just above $9 last month, the price has slowly continued to gain momentum, with the relative strength index (RSI) climbing above the oversold threshold and RSI crossing above its trigger line to generate a buy signal. A breakout above the recent ascending triangle could see a run to $32.20, where the fund may find overhead resistance from the 38.2% Fibonacci retracement level and falling 50-day simple moving average (SMA). Alternatively, a breakdown could result in another look at the YTD low at $9.13.
VanEck Vectors India Small-Cap Index ETF (SCIF)
The VanEck Vectors India Small-Cap Index ETF (SCIF) seeks to track the performance of the MVIS India Small-Cap Index. As its name implies, the fund invests in small-cap companies that operate in India. The $70.02 million ETF provides traders with exposure to some of the country's top up-and-coming names across key sectors such as industrials, materials, and information technology. While the fund trades a respectable $1.08 million in average dollar volume, its 0.97% bid/ask spread suits longer-term strategies that can cover its higher trading costs. As of April 17, 2020, SCIF charges a 0.83% management fee and has declined 35% on the year. Investors also receive a 2.10% dividend yield.
SCIF shares drifted sideways for seven months before commencing their pandemic-driven fall. After minting an all-time low at $17.75 on March 24, the price has shown some resilience by staging a 23% recovery, albeit on average trading volume. If the upside momentum continues, look for further gains up to the 50% Fibonacci retracement level at $26.50. On the downside, a stall at these levels could see the bears claw the fund back to record lows.