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Forget China, Buy These 3 India ETFs Instead
While a flurry of weak Chinese data escalated concerns regarding sluggish global growth, it’s India that showed promises to outpace other major economies over the next few years. The World Bank along with the International Monetary Fund (IMF) indicated that India was the world’s fastest growing economy in 2015 and will continue to hold that position for the next three years, easily surpassing the former leader, China. In this scenario, ETFs having significant exposure to India may provide an excellent opportunity for investors to tap this positive trend. Weak Chinese Economy The sluggish growth condition in China remained one of the major concerns over the past one year. Recently released economic data showed that the Chinese economy is still struggling to provide a congenial economic environment. While the Caixin manufacturing PMI finished below 50 for the 10th straight month in December, the Caixin China services purchasing managers’ index PMI dropped to 50.2 in December from 51.2 in November. Multiple rate cuts and devaluations of the yuan over the past one-year period failed to resuscitate the economy. Also, the World Bank reduced its outlook for Chinese GDP growth in 2016 by 30 percentage points to 6.7%, below last year’s estimated growth rate of 6.9%, which was also below the June forecast of 7.2%. The bank also predicted that the economy may grow at a slower pace of 6.5% over the next two years. Blaming the weak Chinese economy, the bank also reduced its global growth rate forecast for 2016 by 0.4 percentage points to 2.9%. However, it remained above 2015’s estimated growth rate of 2.4%. India in a Bright Spot The World Bank projected the Indian economy to expand at a rate of 7.8% this year and 7.9% over the next two years. While the economy registered a GDP growth rate of 7.4% in the July-September quarter, the economy is expected to continue this positive trend to end the current fiscal year with a growth pace between 7% and 7.5%. Increase in activities in sectors such as manufacturing, mining and services were cited as the main drivers behind the growth in the quarter. Moreover, economic policies including rate cuts by the Reserve Bank of India (RBI) along with several measures taken by the Indian government are likely to boost the economy in the months ahead. Meanwhile, positive net FDI flows in the reserve of RBI and a significant decline in fiscal deficit also had a positive impact on the economy. It was reported that India’s fiscal deficit gradually declined from 7.6% of GDP in 2009 to currently 4%. Also, the continuing slump in prices of oil, which is one of the major imported commodities in India, had a significant effect on the Indian economy over the past one year. While the plunge in crude helped the trade deficit to remain at a controllable level, decline in prices of oil and other major commodities also restrained the inflation rate to go beyond the targeted range. The World Bank said, “In contrast to other major developing countries, growth in India remained robust, buoyed by strong investor sentiment and the positive effect on real incomes of the recent fall in oil prices.” 3 India ETFs to Buy Given the bullishness, we have highlighted three India ETFs with a Zacks ETF Rank #2 (Buy) that may prove to be profitable for investors who are interested to gain from the positive outlook of the Indian economy. Market Vectors India Small-Cap ETF (NYSEARCA: SCIF ) This fund targets the small cap segment and tracks the Market Vectors India Small-Cap Index. In total, it holds 143 securities in its basket with none making up for more than 3.27% of assets. Financials occupies the top position from a sector look at 27.7% while industrials, consumer discretionary, and information technology round off the next three spots. The fund has so far amassed $173.2 million in its asset base while charging 89 bps in annual fees. Volume is good, exchanging around 94,000 shares in hand a day. The ETF lost 0.3% over the past one-month period. EGShares India Infrastructure ETF (NYSEARCA: INXX ) This ETF provides exposure to 30 Indian stocks by tracking the Indxx India Infrastructure Index. It is pretty well spread out across components with none of the securities holding more than 5.06% of assets. With respect to sector holdings, construction & materials takes the top spot at 18.3%, followed by mobile telecommunications (14.7%), electricity (14.3%) and industrial engineering (10.2%). The product has managed assets worth $40.8 million and trades in volume of nearly 26,000 million shares a day. It has an expense ratio of 0.93% and lost 0.3% over the past one month. PowerShares India ETF (NYSEARCA: PIN ) This fund offers exposure to a basket of 50 stocks selected from the universe of the largest companies listed on two major Indian exchanges by tracking Indus India. The top two firms are Reliance Industries and Infosys (NYSE: INFY ). From a sector look, the fund is tilted towards energy and information technology, each accounting for around 20% share, followed by financials (11.5%) and healthcare (11%). The fund has amassed $430.3 million in its asset base and trades in solid volume of around 1.2 million shares a day on average. It charges an expense ratio of 85 bps and lost 0.4% in the past one month. Original Post
Azure Power – A Good Way To Play The Secular Growth Of The India Solar Market
Summary The company has been expanding at a CAGR of 135% since May 2012. India offers huge growth potential with the solar market expected to increase to 100 GW by 2022 from around 5 GW now. One of the largest solar power developers in India with a strong pipeline. Azure Power (Pending: AZRE ) is amongst the largest developers and operators of utility scale solar assets in India. The company has committed to install 11,000 MW by 2022 in RE-Invest 2015. Though this target is more for the galleries than the company’s actual target in my view, the company will still grow tremendously even if it achieves a fraction of that figure. Azure Power started in 2008 and is currently present in the Indian solar commercial and utility sectors. The company has also built medium scale solar power projects in the rural parts of India. Currently the company has presence across 11 Indian states, with 242 MW of projects. Azure Power also has strong links with major USA financial institutions, having raised loans from IFC and US EXIM bank. The company is now thinking of doing an IPO in the US to raise $100 million. India is set to expand its solar industry to 100 GW by 2022, from around 5 GW now. Recently the Indian Prime Minister led the International Solar Alliance proposal in the Paris Climate summit, which shows the country’s serious commitment towards solar. India is expected to have a bright solar future and Azure Power should be a good way to play the Indian story. What Azure Power does Azure Power has presence across the utility and commercial segments and is rapidly expanding in rural India. Its top investors currently are IW Green (in which Mr. Inderpreet S. Wadhwa is the sole member), the World Bank’s International Finance Corp, Helion Venture Partners and FC VI India Venture. The company typically enters into 25-year, fixed price PPAs with government agencies and businesses. The company booked $22 million in sales for the 12 months ended June 30, 2015 and has plans to increase its operating capacity to 520 MW by December 2016. (click to enlarge) Extracts of P&L of Azure Power from F-1 filing with SEC Azure Power operates 17 utility scale projects and several commercial rooftop projects across India. The combined rated capacity of solar projects is 242 MW (out of which 18 MW was distributed rooftop solar). Its 100MW solar power plant was commissioned in Rajasthan in March this year and it also completed the first large scale solar plant in Uttar Pradesh in February 2015 The company has a good track record of completing its projects well ahead of the scheduled due dates. Azure Power has a goal to achieve 1GW and 5GW of projects, operating by December 2017 and 2020 respectively. (click to enlarge) “This is the first large scale capacity project operational under the Chhasttisgarh Solar and we are proud to have successfully brought down the cost of power by almost 64 per cent from Rs 17.91 per unit in 2009 to Rs 6.45 today, for this project.” – Inderpreet Wadhwa CEO Source: Indiatimes Project pipeline as of September 2015 Operational States Capacity (in MW) Punjab 36 Gujarat 10 Rajasthan 140 Karnataka 10 Uttar Pradesh 10 Chhattisgarh 30 236 Under Construction Karnataka 140 Andhra Pradesh 50 Rajasthan 5 Bihar 10 Punjab 28 233 Committed Madhya Pradesh 25 Delhi 3 Punjab 150 178 Commercial Rooftop 18 MW Data from Company’s F-1 filing with SEC Azure Power Positives Strong financial backing – The solar power industry is a capital intensive one and requires massive amounts of equity and debt funding. Azure Power has managed to garner both, thanks to its marquee investors. The company recently won a 150 MW order in AP despite stiff competition. A low cost of capital is essential to win and get good returns from solar power projects. In-house EPC – Azure Power is one of the few solar developers in India with an in-house EPC division. This not only allows the company to lower its cost, but also ensures quality components and design. Most other solar developers in India which are backed by PE investors such as Renew Power, get the EPC done from EPC players like L&T, Mahindras etc. This increases their costs and also sometimes may lead to quality issues. India has massive growth potential – The Indian renewable energy market is going to be one of the biggest markets in the world for the next 25 years. India has committed to make 40% of its total power capacity by 2030 to come through green energy sources. This will mean massive opportunities going forward for all solar players. Currently the Indian renewable energy capacity is less than 15%. Risks Although Azure Power looks promising and has executed well, the company has never been profitable in its limited operating history since 2008. Net losses amounted to $17 million for fiscal year 2015. Other problems common to independent power producers in India are related to land acquisition, regulatory delays and evacuation issues. Though India looks well committed on its target to attain 100 GW by 2022, the company’s profitability will further be affected if India is unable to meet its announced targeted capacity. Another major risk being faced by solar power developers is the increasing competition which has led to very low tariffs being bid in auctions. SBG Cleantech and SunEdison (NYSE: SUNE ) recently won solar tenders with an incredibly low price near 7 cents/kWh, which has been considered as risky by some market analysts. Azure Power which also wins projects through these tenders has to bid low in order to win new projects. US-based SunEdison Inc’s aggressive bid for the tender of 500 megawatts (MW) capacity offered under the Jawaharlal Nehru National Solar Mission (NSM) in Andhra Pradesh has seen India’s solar power tariff touch a record-low of Rs.4.63 per kWh (kilowatt-hour)…Some industry experts raised concerns over the viability of such an aggressive tariff, arguing it could result in further aggressive bids in the auction in Rajasthan-to be held later this year for a capacity of 420MW-given the lower solar park charges in the state compared with Andhra Pradesh. NTPC had invited bids from interested parties to participate in July. Source – LiveMint Conclusion Azure Power is one of India’s largest solar power producers with a massive expansion plan. The company has been considering a listing since June this year . It was one of the first players to enter the solar power generation in India. It has a leading market share in India with a good track record in project development across utility scale, commercial rooftop and micro-grids projects. There are no Indian renewable energy stocks listed on NYSE and Azure Power could be a good investment opportunity, given the massive solar installations the country is going to witness. I would look to invest in Azure Power given that the valuation is reasonable.