It’s been a gloomy start to the holiday season—plunging oil prices, a slowdown in China and the spectre of deflation in Europe represent a trifecta of trouble as we wind up 2014. But there is one bright spot out there: India. After a few rough years, its economy appears to be poised for growth as other economies fall. Recently, the Organisation for Economic Co-operation and Development revised its growth forecast for India up to 6.6% from an earlier 5.7%.
The Financial Times Victor Mallet sums up India’s enviable position as compared to the rest of the global economy:
Unlike Brazil, Russia or South Africa, India reaps immediate advantages for its terms of trade and its domestic budget from the fall in commodity prices triggered by renewed concerns about the world economy.
And unlike China, India will not suffer much from any decline in global demand for manufactured goods because its export sector is relatively small.
Commodities—mostly oil—account for more than half of India’s imports but only 9% of its exports, mainly food. The current account deficit falls by about $1 billion a year for every $1 decline in the price of a barrel of oil, and the reduced cost of fuel subsidies is also easing the burden on the budget.
Another benefit of weaker commodity prices is falling inflation, long the bane of the Indian economy.
Importantly, India’s story is attracting attention from some of the world’s biggest investors—including the Canadian Pension Plan Investment Board (CPPIB), which just opened an office in Mumbai.
The CPPIB has been investing steadily in India—most recently in June when it put $322 million into India’s L&T Infrastructure Development Projects. The fund has committed approximately US$1.4 billion to India since 2010.
India is also rocking the exchange-traded fund (ETF) world. Reuters’ Ashley Lau reports that U.S.-listed ETFs have pulled in about US$2 billion in net new assets this year—outshining all other emerging market funds. That means total assets of the 10 India ETFs tracked by Morningstar are at $6.3 billion—an increase of 47% since January. Compare that to the $272 million added to broad emerging markets ETFs this year.
But choosing the right ETF for exposure can be tricky as Denis Hadacheck at ETF.com reports. According to ETF.com’s Alpha Think Tank, India now carries the highest number of strategists with a favourable view on any single international market—and even Nouriel Roubini is giving the country a thumb’s up. Getting the right ETF exposure is going to take some thought and research, however, because each one offers different risks and sector breakdowns. And that means not all returns are the same. You can read his full analysis here.