Money managers are ready to cash in on India's booming economy as U.S. markets deliver lackluster returns.
In February alone, two managers and two consultants announced new India-only strategies and services.
WisdomTree Investments Inc., New York, listed the first India-only exchange-traded fund on the NYSE Arca in February. PowerShares Capital Management LLC, Chicago, was slated to list an India-only ETF on the NYSE early this month. And officials at Franklin Templeton Investments Inc., San Mateo, Calif., launched a new mutual fund that allows U.S. institutional investors to access the Indian equity markets.
Mercer LLC announced the opening of an India consulting business in mid-February. The new office will help the consultant tap into the growing Indian institutional market as well as beef up its research of the country for other overseas clients, said Richard Nuzum, business leader for the Americas for Mercer's investment consulting practice in New York.
And Ennis Knupp announced in late February that it had opened an office in Mumbai. The new office will help the firm compete for non-U.S. clients throughout Asia and the Middle East and also allow Ennis Knupp to expand its manager research efforts, a statement from the consulting firm said.
“India is breaking away from the BRIC (Brazil, Russia, India, China) pack,” said Mercer's Mr. Nuzum. “You have this huge labor force that is well educated, young, hard working, and what they need to succeed is capital,” he said.
In 2006 and 2007, India's gross domestic product grew 9.2% and 8.5%, respectively. And based on purchasing power parity, the country's GDP grew to approximately $3 trillion at the end of 2007, or 7% of the world's total output, according to data provided by PowerShares.
And the downturn in the U.S. markets following the credit crunch, and fears of a recession, makes pitching non-U.S. equities an easier sell for managers, Mr. Nuzum said.
Benjamin Fulton, executive vice president of global product development at PowerShares, agrees but noted a recent regulatory change in India encouraged the firm to speed up the launch of its India equity ETF.
Non-Indian institutional investors must register with the Securities and Exchange Board of India and generally are restricted on how much they can own of any particular security, especially in the financial sector. To work around that, many registered investors issue participatory notes, derivatives based on underlying Indian stocks, to non-registered investors looking for exposure to the Indian markets. As a result, the true owners of Indian securities have become opaque, a change that doesn't sit well with Indian regulators, Mr. Fulton said.
In October, the SEBI said it would clamp down on the use of such notes, in part because it is difficult to tell who the underlying investors are. “The products haven't been shut down, but they're not as advantageous as they were before,” Mr. Fulton said.
The PowerShares India Portfolio will track the performance of the Indus India index that is compiled by Indus Advisors LLC and provide direct exposure to Indian equities.