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Portfolio > Asset Managers

Hedging India Just Got Easier for L/S Equity

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SINGAPORE (–The world’s first India-focused exchange-traded fund was launched June 15 on the Singapore exchange. The iShares MSCI India US$100 ETF (Reuters Ticker: INDI.SI) will track the MSCI India Index, which covers at least 85% of each industry group in the Indian market.

The new ETF was designed and will be managed by Barclays Global Investors, who was advised by Clifford Chance. HSBC Singapore is acting as trustee.

The ETF has 64 portfolio holdings as of May 31. The largest three weightings were Reliance Industries (12.25%), Infosys Technologies (12.16%) and ICICI Bank (6.72%). The prospectus warned that the iShares MSCI India may be subject to greater tracking error than typical index ETFs because of potential difficulties in holding some of the shares–for example, because there are foreign ownership restrictions on certain stocks which compose the index.

The total expense ratio is 0.99%. With regards to transaction costs, aside from prevailing brokerage conditions, there are clearing fees of 0.05% of the contract value to a maximum of 200 SG$. Investors should also note that there is a 5% goods and services tax on brokerage fees and commissions.

First day volume was a healthy 241,200 lots (100 shares per lot) traded for a value of around $90 million. Shares opened at $3.72, below the expected launch price of $4 that had been mooted by the Singapore exchange web site prior to the launch. The shares traded in the $3.68 to $3.80 range on their debut.

“The onshore tools for shorting the Indian market–that is to say single stock and index futures and options–are not really adequate and can work out expensive,” noted one trader. “This new ETF will make it a whole lot easier to hedge long positions in Indian stocks or to take an outright bearish stance.”

Not everyone was so sanguine, however. “It’s not about managers not having the right tools available, but rather knowing when to use them,” said Jay Oberai, managing director of Synergy Asset Management, which invests in private equity and in mutual funds in India. “Most hedge fund managers investing in India were net long during the recent sharp declines anyway.”

All the same, iShares MSCI India will give investors a cheap and liquid option for hedging the market. Bearish fund managers investing in India will have less of an excuse for being net long.

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Contact Bob Keane with questions or comments at [email protected].


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