India ETF adds most cash since 2015 as biz-friendly Modi's win lifts stocks

International investors are heading to India following the re-election of business-friendly Narendra Modi as prime minister.

The $5.4 billion iShares MSCI India exchange-traded fund, ticker INDA, lured more than $182 million last week, the most in more than four years, data compiled by Bloomberg show. Investors also added the most since September to the $1.5 billion WisdomTree India Earnings Fund, or EPI, in the period through Friday.

“A lot of western investors really like having a conservative like Modi re-elected,” said Andy Wester, a senior investment analyst at Proficio Capital Partners. “He says all the right things to attract foreign investments.”

Modi was sworn in last Thursday for a second five-year term, making him the country’s first premier to be re-elected with a majority since 1984. INDA has risen for the last three weeks, the longest streak of gains since mid-March. India’s key equity indexes resumed their rally since Modi’s victory May 23, and closed at record highs on Monday.

Trouble Ahead

But investors could be arriving in India at just the wrong time. The U.S. plans to end the country’s designation as a developing nation from June 5, thereby eliminating an exception that allowed India to ship close to 2,000 products to the U.S. duty-free. The announcement last Friday adds to investor worries about the country’s slowing economic growth.

“What’s unsettling people now is trade tariffs appear to be becoming part of the policy toolkit,” said Kirk West, executive director for investments at Principal Global Investors, referring to India alongside President Donald Trump’s threat to use tariffs on Mexico.

To be sure, Trump’s move against India hasn’t rattled local investors. The reason: The net benefit to exporters for goods shipped under the Generalized System of Preferences program was about $260 million a year, according to the Federation of Indian Export Organisations. The impact would be minimal, the exporter body said.

On Monday, the rupee rallied to a one-month high, benchmark bond yields slid to a 18-month low and foreign investors bought a net 31 billion rupees of shares. Global funds have plowed more than $11 billion into Indian equities this year, the most in Asia after China, according to data compiled by Bloomberg.

India should outperform if markets return to normal in the second half of 2019, Principal’s West said. That would make an overweight position in the country look more appealing, compared with benchmark weight at the moment, he added.