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Sign of things to come? Indian ETF draws first inflow since July

[SAO PAULO] A small flow of funds into an Indian exchange-traded fund last week for the first time since July 19 may be a sign of things to come as a slump in oil eases the country's widening trade deficit.

Investors added US$4.13 million to the VanEck Vectors India Small-Cap Index ETF, known as SCIF, in the week ended in Nov 16. The flow represented just over 2 per cent of the capitalisation of the sixth-largest US-listed Indian ETF. Oil notched its sixth straight weekly loss, weighed down by concerns over whether Opec and its allies can reduce production enough to stanch a global supply glut.

"I like the momentum with the country as of late," said Mohit Bajaj, director of exchange-traded funds at WallachBeth Capital in Jersey City. "Weaker oil has been good for the country, helping the currency appreciate."

Crude oil - India's biggest import - has retreated from a four-year high, easing concerns about a strain on India's trade account and company profits. The slide helped Indian equities extend a three-week rally on Monday. Shares also climbed ahead of the results of a central bank meeting to discuss government demands to give up some surplus reserves and loosen liquidity norms for lenders.

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There are other signs of life in the Indian ETF industry. Investors traded more than US$1.2 billion of shares in the iShares MSCI India ETF, known as INDA, in the week ending on Nov 9, the most since February and the second-largest weekly turnover since the fund's inception in 2012. INDA is the world's largest fund tracking Indian equities with about US$4.5 billion in assets.

Share prices in the ETFs have rebounded since reaching yearly lows in late October. Both INDA and the WisdomTree India Earnings Fund, known as EPI, advanced around 7 per cent this month, twice the gain seen in the biggest emerging-market equity ETF, the Vanguard FTSE Emerging Markets ETF.

ETFs dedicated to emerging-market bonds and stocks have received inflows for five straight weeks, amid signs of fading dollar strength and President Donald Trump's more moderate tone on the trade dispute.