Rolle im Portfolio
The db x-trackers S&P CNX Nifty ETF provides equity exposure to India. As with all single country emerging market exposures, this db x-trackers ETF would be best deployed as tactical tool within a well diversified portfolio. The ETF can also be deployed as a core holding complementing exposure to emerging markets in Asia and Latin America. Increased correlation with international stock markets over the past years makes the ETF less beneficial from a diversification point of view. The index correlated 61% with the MSCI World USD Index and 85% with the MSCI EM USD Index over the last five years. As the correlation with China remains relatively low, the ETF might be utilised as diversifier for equity exposure to China. The index correlated 27% with the MSCI China CNY Index over the last five years.
The ETF is suitable for investors believing in a story rooted in robust domestic demand streaming from the relatively young and increasingly affluent population in India. In addition, investors overweighting China can use the ETF to diversify their exposure within the emerging market equity segment of their portfolio.
Investors should keep in mind that the Indian equity market is still lacking transparency. The country does not permit free access to its market by controlling capital on the Rupee and on foreign investment. Indian companies have structural issues as many founders or India’s long-established business families hold controlling stakes in many companies; resulting in corporate governance issues. Especially the very complex ownership structure of companies with widespread pyramiding, cross-holding and the use of non-public trusts are far from transparent. In addition, accounting rules are yet to be up to international standards. Nevertheless, transparency has improved massively over the years.
Fundamentale Analyse
In contrast to China and most developed markets, India has the benefit that its young, employable population is growing. However, the country still has a long way to go in modernizing its economy. Less than 10% of the working population is employed in a regulated job, leaving the remaining 90% without health and social insurance.
Although the Indian stock market hit a record high in 2013, most international investors actually lost money due to a weak rupee erasing returns. Indeed, while the domestic S&P BSE Sensex Index rose around 9% in 2013, the MSCI India lost almost 6%, as measured in US-Dollars. The Indian rupee lost over 20% alone between May and August as investors feared that India would struggle once the US started tapering.
Analysts and investors are generally more positive for 2014; although this is largely dependent on expectations on the national election’s outcome in May. At state elections in late 2013, the pro-business opposition Bharatiya Janata Party (BJP) put up a strong performance against a ruling coalition, which was penalised for the slowing economy, years of high inflation and a string of corruption scandals. These results have spurred hopes that the BJP is headed for victory at the forthcoming national elections.
In fact, investors have been betting already on a pro-business government. Foreign institutional investment in Indian equities totalled $8.5bn since September 2013, more than cancelling out a net outflow of $3.8bn between June and August. However, political analysts warn that the state elections results may not necessarily lead to a working majority in the national parliament, pointing out that the four states where the BJP won account for just 13% of seats. Nevertheless, investors at least hope that the results act as a weak-up call for the current government to lead the way with much-needed reforms.
The economy is expected to expand by less than 5% in the year to end March. This would be the lowest growth for a decade. In addition, the country’s budget deficit is expected to overshoot its target of 4.8% of GDP. Already at 94% of the full-year target in November - with four months to the end of the fiscal year - Morgan Stanley estimates the deficit to come in at 5.1-5.5%. Breaching the target could force rating companies to downgrade the country to junk. The government hopes to fill part of the gap by selling bandwidth and state-owned company shares worth 400 billion rupees.
Meanwhile, India continues to battle with high inflation. Wholesale price inflation rose to 7.5% in November 2013, above expectations and marking the sixth consecutive month inflation was above the central bank’s target of 5%. The Central Bank had raised interest rates by 0.25% both in September and October, but despite continuously high inflation, it kept them unchanged in December. Industry leaders continue to pressure the Central Bank to keep rates low to support the economy, although this would be counter-productive for inflation.
Indexkonstruktion
The S&P CNX Nifty Index provides exposure to Indian equities, representing the largest and most liquid stocks in the country. The index is market capitalisation weighted, including 50 of the 935 stocks listed on the National Stock Exchange of India Ltd (NSE). This represents approximately 60% of the overall market capitalisation of the country. The constituents are spread across over 20 sectors and thereby offer well-diversified access to the Indian stock market. To be considered, component stocks have to meet three criteria. The stocks have to be liquid, taking impact costs as a measurement; the constituents have to have a six-month average market capitalisation of at least Rs 5bn and at least 12% of its stocks must be available to investors. The index is calculated real-time during market hours and is reviewed quarterly with a 6 week notice given to markets before the changes will be made in the index. As of writing, financials (27% of the index’s value) is the biggest sector allocation, followed by IT (16%) and Energy (12%). The index is very top heavy, with the top ten holdings representing almost 60% of the index’s value.
Fondskonstruktion
The db x-trackers S&P CNX NIFTY ETF uses swap-based replication methods to track the S&P CNX NIFTY Index. To achieve this return, the fund invests in a fully-funded swap with its parent company Deutsche Bank. Under this swap agreement, the proceeds of fund holders’ investment in the ETF are transferred to the swap counterparty in exchange for the performance of the index. To mitigate counterparty risk, db X-trackers requests that Deutsche Bank post collateral in a segregated account with the custodian State Street Bank Luxembourg in Deutsche Bank’s name of and pledged in favour of the fund. Should Deutsche Bank default, the ETF may be terminated and assets of the ETF liquidated without giving prior notice to the bank. As of writing, the collateral comprises a large majority of OECD country equities and various other types of securities including government bonds. The company applies haircuts to the collateral’s market value (7.5%-20% for equities, 10% for corporate bonds, 0% for government bonds), which results in overcollateralisation of the fund. Collateral is reviewed daily by third party State Street Global Advisors (SSgA). At the time of writing, the collateral value is equivalent to 108.8% of the fund's NAV. The fund doesn't engage in securities lending, which limits counterparty risk at the fund’s level.
Gebühren
The fund levies a total expense ratio of 0.85%. . This falls in the upper range of ETFs racking the Indian stock market. Other potential costs associated with holding this fund which are not included in the TER include swap costs, bid-ask spreads and brokerage fees.
Alternativen
As of writing there are a few ETFs offering equity exposure to India. The other ETFs are tracking either the MSCI India Index or the DJ India 15 TR Index. The largest alternative in terms of total assets under management is the swap-based Lyxor ETF MSCI India. The MSCI India Index is a free-float-adjusted market capitalisation index, representing about 85% of the NSE. Therefore, the Lyxor ETF represents a slightly bigger share of the Indian economy.
