The two major ETFs tracking the stock markets in India declined sharply on Friday, making the end of a rough week. The WisdomTree India Earnings Fund ($EPI) fell over 3.5 percent in early trading and the iShares S&P India Nifty 50 Index Fund (INDY) dropped over 3.6 percent. Joining India ETFs in their decline were other major emerging markets ETFs, with Vanguard FTSE Emerging Markets (VWO) off over 1.5 percent and the iShares MSCI Emerging Markets Indx (EEM) down over 1.25 percent.
Rate hike, currency purchases in India
The Indian rupee has fallen over 13 percent against the dollar this year and, last week, the Indian government moved to shore up inflation. Raghuram Rajan, the new governor of the Reserve Bank of India (RBI), boosted the repurchase rate by 25 basis points to 7.5 percent. This prompted a sell-off last week that saw the NIFTY (an index following India's biggest companies) fall nearly 3.5 percent since last Thursday.
“Macroeconomic imbalances such as high inflation and the current-account deficit still remain, and they won’t go away unless we address the structural issues,” said senior economist at Royal Bank of Scotland ($RBS) Group Plc in Mumbai Gaurav Kapur. “The government has taken measures over the last year but a lot remains to be done.”
Uncertainty holds down markets
Some of the reason for continued declines may lie in an inability to determine what the central bank had planned for the future.
“Investors are looking forward for further cues to decide market trend,” analyst Nidhi Saraswat with Bonanza Portfolio Ltd., said in and e-mail to Bloomberg. “RBI has tightened liquidity in the market by increasing the repurchase rate. If it takes some more steps to bring liquidity in the market again, this would boost market sentiment and buying can be seen.”
