India ETFs Test Uptrend Line as Budget Looms

Will the budget deliver what investors want?

Indian stocks, like their global counterparts, have been inflicted with coronavirus fears this week as investors weigh the economic impact of the deadly illness. Interestingly, the country's Sensex Index outperformed the MSCI World Index in each six-month period after the 2003 SARS, 2009 swine flu, and 2018 Ebola epidemics, per The Economic Times.

Market watchers also have their attention on the upcoming release of the Modi government's first full-year Union Budget. Analysts expect it to include personal income tax cuts, reductions of long-term capital gains tax, measures to boost the real estate sector, and policies to attract private/foreign investments.

U.S. traders and investors can gain access to Indian stocks by trading these three exchange-traded funds (ETFs) – all of which sit near well-defined uptrend lines. Let's take a closer look at the metrics of each fund and point out possible trading tactics.

iShares MSCI India ETF (INDA)

With assets under management (AUM) of $5.54 billion, the iShares MSCI India ETF (INDA) aims to provide a similar return to the MSCI India Index – a benchmark that represents roughly 85% of the Indian stock market. The fund tilts toward financials, allocating about 30% of its portfolio to the sector. Multinational conglomerate Reliance Industries Limited (RELIANCE.NS) commands the top individual stock allocation with a weighting of 11%. Tight spreads and deep liquidity make the ETF compatible with most trading strategies. INDA charges a modest 69% management fee, offers a 1% dividend yield, and has traded 9.43% higher over the past year as of Jan. 28, 2020.   

Profit takers moved in after the fund set a fresh 52-week high on Jan. 17. However, traders should look for the share price to stage a rebound at $35, where it finds a confluence of support from a multi-month uptrend line and the 50-day simple moving average (SMA). In terms of trade management, think about trailing a stop underneath each higher swing low. Place an initial stop slightly under the 2020 low at $34.37.

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

Direxion Daily MSCI India Bull 3x Shares (INDL)

Formed in 2010, 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 it a geared version of INDA. The additional leverage makes the ETF a suitable instrument for traders who want to make an aggressive bullish bet on Indian equities. Average dollar volume of nearly $2 million ensures adequate liquidity most days. As of Jan. 28, 2020, INDL has $75.47 million in net assets, yields 0.68%, and is up 2.86% year to date (YTD).

INDL shares have moved lower over the past week but may catch a bid around $67.50, where the ETF encounters vital support from an established uptrend line and 200-day SMA. A recent golden cross – where the 50-day SMA crosses above the 200-day SMA – also builds the bulls' case by predicting higher prices. Long traders should set a profit target close to horizontal line resistance at $80 and cut losses if the price closes beneath this month's low at $64.04.

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

WisdomTree India Earnings Fund (EPI)

The WisdomTree India Earnings Fund (EPI) seeks to replicate the performance of the WisdomTree India Earnings Index. The 12-year-old smart-beta fund selects companies based on earnings in the prior fiscal year, adjusted for the availability of Indian stocks to foreign ownership. As a result, the ETF's portfolio heavily favors value stocks. More than 1 million shares change hands per day on a 0.04% average spread. Still, traders should use limit orders given significant gaps occur regularly as Indian stocks trade outside New York hours. As of Jan. 28, 2020, EPI carries a 0.85% expense ratio and has gained almost 5% over the past 12 months. The fund also issues a 1.17% yield.

The most recent retracement finds support from the dotted trendline and 50-day SMA at the $24.75 level, providing a high-probability entry point. Traders who buy the fund should book profits on a test of major overhead resistance at $26.50. Control risk by exiting trades with a small loss if price fails to hold the $24.41 January low and moving stops to the breakeven point if the ETF closes above its YTD high at $25.69.

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