An index fund tracking Indian shares jumped ON Monday as a long-awaited trade deal with the US helped it buck a slump seen across risk assets. The $9.4 billion iShares MSCI India ETF gained the most since last May after US President Donald Trump said he would lower tariffs on Indian goods to 18% from 25%, following Prime Minister Narendra Modi's agreement to halt purchases of Russian oil.MSCI's gauge for developing-nation equities, meanwhile, slid as much as 2.9%, the most since April, before trimming the d ...

Economic Overview - The Reserve Bank of India has cut the repo rate to 5.25%, indicating a supportive monetary policy environment [1] - India's GDP is projected to grow by approximately 6.7% for Fiscal Year 2026, reflecting strong economic expansion alongside stable prices [1] - The Consumer Price Index (CPI) for December 2025 was reported at 1.33%, significantly below the RBI's target of 4%, which is favorable for maintaining purchasing power [2] Investment Landscape - India is seen as a primary destination for investment due to its favorable economic conditions, characterized as a "Goldilocks phase" with high growth and low inflation [4] - Investors are shifting capital towards markets like India that offer political stability and controlled prices amidst volatility in Western markets [5] - Lower interest rates are expected to catalyze corporate expansion and profitability, particularly benefiting the financial sector [6][7] Market Strategy - U.S.-based investors can access Indian market growth through the iShares MSCI India ETF (BATS: INDA), which is heavily weighted towards the financial sector [8] - The ETF's performance is expected to benefit from increased loan demand as the economy grows and interest rates fall [9] - The "China Plus One" strategy is driving foreign direct investment into India, providing a long-term support for the ETF's price [10] Company Focus: HDFC Bank - HDFC Bank is a critical holding in the INDA ETF, accounting for over 8% of the fund, and its performance is vital for the ETF's overall success [11] - The bank has returned to an aggressive growth phase, with a recent Credit-Deposit (CD) ratio normalizing to 98.5%, indicating a healthier balance sheet [14] - HDFC Bank reported a 13% year-over-year increase in loan growth and an 11.5% increase in deposits, signaling a recovery from previous merger integration issues [21] Valuation Insights - HDFC Bank's recent IPO of its subsidiary, HDB Financial Services, adds tangible value to the parent company's books, enhancing its market capitalization [16][17] - This structural valuation support may be underappreciated by the market, providing a margin of safety for investors [15] Strategic Diversification - The divergence between India's stable growth narrative and the uncertainty in Western markets presents a compelling investment opportunity [18] - The combination of the INDA ETF and HDFC Bank's growth potential offers a data-backed strategy for investors looking to diversify away from U.S. political risks [20]

Core Insights - The Nifty 50 Index has declined approximately 1.87% in early 2026 due to tariff concerns and foreign equity outflows [1] - Despite short-term volatility, India ETFs present a strong long-term growth opportunity, with the index up about 1.63% over the past six months and nearly 8.41% over the past year [2] Economic Outlook - India's economic outlook is optimistic, supported by favorable demographics, a growing base of young investors, increasing AI investments, advancements in chip design and digital infrastructure, and rapid digital transformation [3] - The OECD projects India's real GDP growth at 6.7% in 2025 and 6.2% in 2026, driven by resilient domestic demand and digitalization [6] Market Pressures - Uncertainty regarding U.S. tariffs poses a significant challenge, with tariffs on Indian goods reaching up to 50% and potential increases for nations purchasing Russian oil [4] - Foreign investors have sold $900 million in Indian shares in January 2026, following a record $19 billion in sales the previous year [5] Growth Projections - India's economy is expected to grow by 7.4% in the fiscal year ending in March, surpassing initial estimates of 6.3%–6.8% [7] - Private consumption, accounting for nearly 60% of GDP, is projected to grow by 7% year-on-year, while government spending is expected to increase by 5.2% [8] Investment Opportunities - Short-term challenges may increase market volatility, but India's long-term economic fundamentals remain strong, presenting investment opportunities [14] - Recommended India ETFs include iShares MSCI India ETF (INDA), WisdomTree India Earnings Fund (EPI), and Franklin FTSE India ETF (FLIN), with INDA being the largest at $9.58 billion in assets [15][16]

Core Viewpoint - The Indian equity market has experienced significant underperformance in 2023, with the Nifty 50 index only increasing by approximately 5% year to date, contrasting sharply with a 22% gain in the previous year and lagging behind many Asian markets that have surged over 30% [1][2] Group 1: Causes of Underperformance - Disappointing corporate earnings growth, subdued domestic consumption, and adverse tariff disputes, including new U.S. tariffs, have negatively impacted export-sensitive sectors and contributed to rupee depreciation [4] - Domestic political uncertainty, a slowdown in capital expenditure (capex), and a shift of global capital to safer markets have pressured Indian equities, with foreign investors estimated to have sold over $30 billion in Indian equities over the past year [5] - The Indian equity market's valuation remains high, trading at approximately 22.3 times forward earnings, about 20% above its long-term norm, which has raised concerns [5][6] Group 2: Positive Outlook - Goldman Sachs has upgraded the Indian equity market to "overweight" after 13 months of a "neutral" rating, citing supportive policy changes such as anticipated RBI rate cuts, liquidity easing, and reductions in the Goods and Services Tax (GST) [7] - Record equity purchases by Domestic Institutional Investors (DIIs) and steady retail Systematic Investment Plan (SIP) inflows have stabilized the market amid foreign portfolio investor (FPI) selling [8] - The end of a year-long cycle of earnings downgrades suggests a clear earnings rebound is expected, contributing to a bullish outlook [9] Group 3: Investment Opportunities - Several Indian ETFs are highlighted as potential investment opportunities, including: - **iShares MSCI India ETF (INDA)**: Net assets of $9.57 billion, top holdings include HDFC Bank (8.12%), Reliance Industries (6.59%), and ICICI Bank (5.18%), with a year-to-date gain of 4% [11][12] - **WisdomTree India Earnings Fund (EPI)**: Total assets of $2.85 million, top holdings include Reliance Industries (7.49%), HDFC Bank (6.17%), and ICICI Bank (5.26%), with a year-to-date gain of 3.1% [13] - **iShares India 50 ETF (INDY)**: Total assets of $690.23 million, top holdings include HDFC Bank (12.73%), Reliance Industries (8.53%), and ICICI Bank (8.14%), with a year-to-date gain of 5.2% [14] - **Franklin FTSE India ETF (FLIN)**: Total assets of $2.59 billion, top holdings include HDFC Bank (7.13%), Reliance Industries (6.45%), and ICICI Bank (4.54%), with a year-to-date gain of 3.6% [15]

Core Insights - The U.S. is reportedly preparing to reduce tariffs on Indian imports from 50% to between 15% and 16%, contingent on India's commitment to decrease Russian oil purchases, which is generating optimism in the markets, particularly for India-focused ETFs [1][4] - The anticipated bilateral trade agreement is expected to be formalized at the upcoming ASEAN Summit, potentially alleviating trade tensions and significantly benefiting large-cap Indian equities and related ETFs [2][6] - The geopolitical dynamics, including the U.S. strategy to economically isolate Russia, are influencing the trade negotiations, which could lead to a positive impact on global trade and financial markets [3][5] Trade Agreement Implications - The trade deal is expected to enhance India's export sectors by providing tariff relief, particularly benefiting industries such as textiles, engineering goods, and pharmaceuticals [4][7] - The agreement is also part of the U.S. strategy to diversify energy alliances, especially in light of reduced agricultural imports from China, with India positioned as a potential new market for U.S. agricultural products [5][6] Investment Opportunities - The impending trade deal presents a significant opportunity for investors to increase their exposure to Indian markets through ETFs before prices rise post-announcement [7][8] - A shift in sentiment from trade conflict to strategic partnership is likely to attract Foreign Institutional Investor (FII) capital into India, making it an opportune time for long-term investors to accumulate India ETFs [8] India-focused ETFs Overview - iShares MSCI India ETF (INDA) has net assets of $9.58 billion and has gained 3.5% year to date, with fees of 62 basis points [10] - WisdomTree India Earnings Fund (EPI) has total assets of $2.9 million, up 2.1% year to date, with fees of 84 basis points [11][12] - Franklin FTSE India ETF (FLIN) has total assets of $2.53 billion, with a year-to-date increase of 3.3% and fees of 19 basis points [13] - The India Internet ETF (INQQ) has net assets of $63.4 million, also up 3.3% year to date, with fees of 86 basis points [14]

Core Insights - The iShares MSCI Brazil ETF experienced a significant inflow of $285 million in the week leading up to a call between President Trump and Brazilian President Lula da Silva, discussing potential tariff reductions [2] - The ETF has shown a year-to-date increase of over 37%, indicating strong performance despite previous tariff announcements [2] - In contrast, the iShares MSCI India ETF has only returned 0.23% year to date, highlighting India's underperformance in the ETF category amid similar tariff challenges [3] Brazil's Performance - Brazil's exports to countries other than the US have increased, mitigating the impact of the 50% tariffs imposed on Brazilian goods [2] - The inflow into the Brazil ETF marks the first net inflows since the tariffs were announced in July [2] India's Situation - The Nifty-50 index in India has seen a marginal increase of 2% since the implementation of the tariffs, driven by domestic sectors like financials and consumer discretionary [3] - Key export-oriented sectors such as IT and pharmaceuticals are not affected by the tariffs, contributing to the muted market reaction [3] China's Performance - The KraneShares CSI China Internet ETF and the iShares MSCI China ETF have returned nearly 46% and 43% respectively, indicating strong performance despite some institutional divestment from China [3] Caution in Emerging Markets - Investors in single-country funds, particularly in emerging markets, are advised to exercise caution and monitor their investments more frequently compared to the US market [4]

Core Points - The article discusses the potential for a temporary trade agreement between the United States and India, which may lower the planned tariff rates on India to below 20% [1] - There are indications that India is seeking a more favorable trade agreement compared to the recent U.S.-Vietnam agreement, which has faced complications [6] - Following recent trade negotiations, India has indicated plans to impose retaliatory tariffs on U.S. products in response to U.S. tariffs on Indian automotive imports [7] Group 1 - The U.S. is reportedly working towards a temporary trade agreement with India, which could ease tensions and allow for further negotiations [1] - The Indian government is looking for a trade deal that is more advantageous than the one recently proposed to Vietnam, which has been criticized for its unfavorable terms [6] - After a recent round of negotiations, India has communicated its intention to the WTO regarding retaliatory tariffs on certain U.S. products [7] Group 2 - India is expected to send a delegation to the U.S. for further trade discussions, focusing on resolving disputes over tariffs on automotive parts, steel, and agricultural products [8] - The U.S. has requested India to open its agricultural market, particularly for genetically modified crops, but India has rejected this due to concerns over food security [9] - Key issues remain unresolved, including non-tariff barriers in agriculture and regulatory processes in the pharmaceutical sector [9]