India ETF coming but don't get too excited

Posted by: Aaron Pressman on June 16

U.S. investors who wanted to jump on the India stock band wagon in the past haven’t had many great choices. And now that India has suffered a massive sell-off and bounce back, the same slender line up presents itself. Basically, there are a couple of closed-end funds that trade at big premiums to net asset value. The India Fund (symbol IFN), for example, is trading a 26% premium, according to ETFConnect.com. Why no simple index-based mutual fund or exchange-traded fund? Apparently there are rules limiting how foreigners can invest directly and the market is fragmented with lots of small caps.

So a lot of people were excited and even surprised when Powershares filed a proposed India ETF among a blizzard of new funds. It’s to be based on something called the Halter USX India Index. Great, what’s that?

Well, turns out it’s an index of just 18 Indian companies that trade here in the U.S. already, companies like Wipro and Rediff.com. That’s not very exciting for a couple of reasons. First, you can already buy that slim segment of the Indian market. And second, it’s not going to reflect the full Indian market. Finally and most importantly, just two companies — Wipro and Infosys Technologies — make up almost half of the weighting. That’s a lot of concentration risk. So, I’d say the wait goes on for a true India index investment vehicle.

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