Consistency is far better than rare moments of greatness

India is currently in a sweet spot as far as Global Economy is concerned. Also, with practically Zero Interest Rates and Lower Growth in Developed World, Professional Investors are increasing their Allocation to Emerging Markets. The Retail Investors are still not sure where to invest. The uncertainty in the US Presidential Elections is also having a positive impact on the outlook of Emerging Markets. With good Monsoon, focused Government at the Center and major structural reforms, India is / will get higher allocation for Investments. We at Simplicity always keep a close watch on global long-term trends and give our advice to the Clients, which is more focused on ‘Strategy’ and not on short-term volatility. We use the volatility to our advantage by helping in fresh investments when Markets are correcting, as the long-term outlook is good for India.

In this News Letter we will share with you what are / will be the implications of the first India ETF getting listed on the London Stock Market. How does it impact your India Investments? Do you need to change the strategy of your investments in stocks and mutual funds?

So let us first understand what an ETF is. An exchange-traded fund (ETF) is an investment fund traded on Stock Exchanges, much like Stocks. An ETF holds assets such as Stocks, Commodities, or Bonds, and trades close to its Net Asset Value over the course of the trading day. Exchange Traded Funds (ETF) are very popular with Professional Investors in developed Countries like USA, Members of European Union, Canada, Japan, Australia, Hong Kong and Singapore. ETF reduces paper-work and costs of transaction. It also allows investors to invest in Countries where in normal course they would not have been able to invest. E.g. a US Citizen can easily buy ETF of Russia, India, China listed on Global Stock Markets. Following is an illustrative Portfolio of a Professional Investor (Aggressive) from US

Stock/Fund	Allocation
USA ETF	25%
USA Technology Fund ETF	15%
Europe ETF	10%
Japan & South Asia	10%
Russia ETF	5%
South America ETF	10%
India ETF / Stocks / Funds	5%
US Bonds	20%
Total	100%

Through this first India ETF, Asset Managers Zyfin Holdings in partnership with London-based First Trust Global Portfolios aims to offer global investor’s exposure to Indian Equities. The ETF will be denominated in three currencies – U.S. Dollar, Euro and Pound. Investments by the above ETF will be reported as ‘Investments made by an FFI’. This ETF is bringing a new channel of investors into India and it’s going to have a major impact on the Indian Stock Markets. E.g. NRI’s find it very difficult to invest in India due to KYC Documentation, lack of professional distributors, Etc. Now they can invest in India hassle-free, in their own currency from their country. We expect large flow of funds to come to India through this and all future ETFs.

The MSCI India Index is designed to measure the performance of the large and mid-cap segments of the Indian Market. With 74 constituents, the index covers approximately 85% of the Indian Equity Universe. The Sectoral Allocation of the ETF will be about 20% in IT, 17.5% will be in Financial Services and so on

Out of the 20% on IT, roughly 50% will be in Infosys, 28% in TCS and remaining is other IT Companies (not in the Top 10).

This new investment product will result in an increase in the stock price of those companies that are part of the ETF and also result in a cascading increase in stock prices of those companies in similar domain of similar size. Here, it is also important to note that there would be a negative impact on stock prices and the NAV’s of Indian mutual funds investing in these companies when the markets turn bearish or when there is a withdrawal from such ETFs. Here, at Simplicity, we will be closely monitoring the investment patterns of such products and their impact on our client investments. We will also ensure that our clients are invested in Mutual Funds that will not be impacted by such global products so that your overall portfolio continuous to return handsome profits.

While, Globalization is good for India in the long run, it is important to understand that it will also impact investment returns. We, at Simplicity, will be laser focused on such impacts and ways to mitigate their risks.

Remember – Smart Investing is more about Strategy and how we are able to predict the impact of global events beforehand on our investments while leaving emotions out!