India Sell-Off

Shares of Indian exchange traded funds closed at a four-month low on Friday as concerns about inflation and interest rates continued to weigh on investors.

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The WisdomTree India Earnings Fund (EPI) closed at $24.16, down 16% from the most recent high on November 5.

News that the December wholesale price index rose 8.43% from the prior year after a 7.48% increase in November raised investor concerns about future interest rates.  According to the Wall Street Journal, one economist is predicting interest rate hikes of 125 basis points in 2011.

The prospect of higher interest rates creates the expectation of lower profits and causes stocks to fall across several sectors.  For example, higher rates squeeze bank profits and result in lower margins and sales for automakers.

EPI tracks a fundamentally weighted index that measures the performance of profitable companies traded in India that are eligible to be purchased by foreign investors. The $1.5 billion fund carries an expense ratio of 0.88% and top holdings include Reliance IndustriesInfosysOil & Natural Gas Corp and the State Bank of India.

Another large India ETF is the PowerShares India Portfolio (PIN) which tracks a 50 stock index designed to replicate the Indian equity markets as a whole.  In addition to Reliance, Infosys and Oil & Natural Gas, other top holdings include Tata Consultancy and utility NTPC.  PIN’s expense ratio is 0.78%.

For a complete list of country ETFs, please visit the ETF Directory.