Fund manager names the best ETFs to play in India right now

Arjun Jayaraman of Causeway Capital Management remains bullish on India despite the unexpected election result in the country. The portfolio manager told CNBC Pro Talks last week that India is his top pick among emerging markets and that the long-term outlook for the market is good. But he cautioned that there may not be “huge upside” in the near term. For the BSE Sensex, he predicts total returns will fall in the high single digits to low single digits. But international investors would find it difficult to invest directly in Indian stocks. One of the best ways to do so is through exchange-traded funds. Jayaraman said small-cap stocks are the “most interesting part” of India. “India is a long-term high-growth market, we would say that mid-cap and small-cap companies are the most attractive option for investors.” [market] is the sweet spot. That’s where you get the most beta, or the most exposure to this strong secular growth. Large caps will also be good, and they will participate in the growth, but not to the same extent as midcaps and small caps. [caps]”, said Jayaraman. In this context, he named an ETF to play this corner of the small-cap market: the iShares MSCI India Small-Cap ETF. “Those with the largest exposure to small-caps over the last years will have the highest return,” Jayaraman said. For investors looking to invest in large-cap stocks, he recommends the iShares MSCI India ETF. A third ETF Jayaraman likes is the WisdomTree India Earnings Fund, which tracks an index that measures the performance of profitable listed companies in India Jayaraman manages Causeway’s Emerging Markets Fund and International Opportunities Fund. Both funds outperformed their benchmarks in the year to 31. May, the first having increased by 13% – exceeding the 3.5% of the MSCI Emerging Markets – and the second by 9.6% since the beginning of the year – above the 6.1% of the MSCI ACWI ex- While both funds invest in emerging market stocks, the International Opportunities Fund also holds stocks of companies from developed countries outside the United States. Despite the unexpected election result in India, he remains confident in this market due to the support of valuations. He pointed out that his fund’s Indian stocks are currently trading at “significant” price-to-earnings discounts to the MSCI India index. “Market volatility may provide repositioning opportunities,” Jayaraman said in a note written with other portfolio managers of the fund.

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