For ETF Investors, BRIC Is Really Just India

This year's failings of the Brazil, Russia, India and China quartet – commonly known as “BRIC” – are well documented.

Of the four major single-country BRIC ETFs, the average 90-day return entering Friday was a loss of over 21 percent, more than enough to qualify as a bear market.

Down 11 percent over the past three months, the WisdomTree India Earnings Fund (ETF)EPI is not innocent in all this, but a drop of 11 percent is just a third of the decline experienced by the iShares MSCI Brazil Index (ETF) EWZ and less than half the drop notched by the iShares FTSE/Xinhua China 25 Index (ETF) FXI over the same period.

While EPI's showing is not awe-inspiring, it is clearly less bad than equivalent BRIC ETFs, which could be a sign that the least bad offender could regain the leadership status it held last year. Fundamentals confirm as much.

A Look At Fundamentals And India

“One of the economic stories of the times is China's attempt to rebalance its economy from a massive state-controlled infrastructure and investment-led economy to more consumption led.

“This is exactly the type of economy India is today. Household consumption as a percentage of GDP is much higher in India. India’s ~60 percent consumption-expenditure-to-GDP ratio (compared to ~39 percent of China) indicates an economic model hugely influenced by local consumption [...] providing potentially better insulation from global headwinds,” said WisdomTree in a note out Friday.

EPI's leverage to the Indian consumer is more than adequate, as consumer discretionary and staples names combine for over 13 percent of the ETF's weight. The ETF's underlying index holds the most profitable Indian companies that are accessible to foreign investors. Profitability is the key there at a time when emerging markets earnings growth is, at best, anemic.

More Support For India

Bolstering the case for Indian stocks and ETFs such as EPI is the fact that the country is home to perhaps the most effective central bank in the developing world.

China's central bank has proven ineffective at propping up equities there. Russia's central bank has rapidly moved from massive interest rate increases to sharp cuts. Brazil, home to some of the highest interest rates anywhere in the world, is also home to one of the most ineffective central banks.

The opposite is true of the Reserve Bank of India.

“Under the excellent leadership of Raghuram Rajan, the Reserve Bank of India (RBI) has clearly established itself as an inflation-fighting central bank. After successfully lowering inflation (compared to 2013 double-digit numbers, July 2015 inflation was 3.78 percent), RBI has so far engaged in three consecutive rate cuts, with another one widely expected to happen this year.

“At a time when we are staring at an imminent rate hike in the U.S. (which could put downward pressure on all EM currencies), a rate cut by RBI speaks volumes of forward-looking stability and strong fundamentals of the rupee,” said WisdomTree.