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Once Again, Government Has India ETFs at Crossroads


The stalemate has weighed on the common currency as investors fear Athens could go bankrupt.

Remembering that failing to prepare is preparing to fail, investors can prepare for the worst-case India scenario. That being that the country sees its credit rating moved to junk status. Assuming that happens, ETFs with large exposure to high-beta sectors such as financials and energy could be vulnerable in the near-term.

Avoiding financials with Indian large and small-cap ETFs can be tricky as the sector is often the largest in both types of funds, so focusing on India's domestic demand story could prove to be the winning bet. It does not get much attention, but the EGShares India Consumer ETF (NYSEARCA:INCO) is the best-performing India ETF year-to-date with a gain of nearly 41%. Roughly 53% of INCO's weight is devoted to makers of personal goods, food, and beverages, which is to say the ETF is not a play on what Indian consumers, but rather on what they need.

Despite its almost 26% weight to financial services names, the newly minted iShares MSCI India Small Cap Index Fund (BATS:SMIN) merits consideration as well. Nearly 24% of that fund is directly exposed to the consumer and another 19% goes to health care and utilities names, so SMIN is not ultra-risky at the sector level.

There is one more new ETF that is worth a look even if India heads to junk status. The EGShares Emerging Markets Domestic Demand ETF (NYSEARCA:EMDD) focuses solely on companies that are levered to the domestic demand stories in various emerging markets. That means a couple of important things. First, US multinationals such as Coca-Cola (NYSE:KO) are not included in this ETF. Second, India merely accounts for 15.3% of EMDD's weight, so there is adequate coverage for investors should Indian stocks decline.

Of course, it is worth noting India and China combine for about 30% of EMDD's weight and that is important because the two countries could have combined consumer spending of $10 trillion annually by 2020.

Editor's Note: This content was originally published on by The ETF Professor.

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