NEW YORK ( TheStreet) -- Accelerating inflation in India generates headlines, but it's a consequence of a strong economy. The Reserve Bank of India is likely to raise interest rates soon, and that could lift the value of the rupee versus the U.S. dollar.
That, in turn, would add some momentum to India ETFs that are already leading the Brazil-Russia-India-China group of funds and among the better performing emerging market ETFs in 2010.
The Indian government projects GDP growth of more than 8% for fiscal year 2011, while a domestic economic think tank estimates the economy will grow more than 9%. That growth, along will the relaxed monetary policy from 2008, is leading to inflation, which was 10.2% in May. The central bank started raising interest rates in March and is expected to raise them again soon.
Usually inflation is a negative, but these are not usual times. Much of the world may look on with envy as India enjoys robust growth and rising prices, the opposite of slow growing or stagnant developed economies that cannot seem to generate any inflation. In other words, India has the kind of problems that the developed world wishes for. India's inflation come with growth, whereas the developed world's low inflation is the result of too much debt.For investors, that means there will be opportunities for profit. There are two solid ETF options for India in PowerShares India Portfolio (PIN) and WisdomTree India Earnings Fund (EPI). Superficially, there does not appear to be much of a difference between EPI and PIN. A comparison of the top 10 holdings, for instance, shows that seven are the same. Still, small differences can translate into a wide performance gap in the long term, and choosing between the two funds becomes more important the longer an investor intends on staying exposed to India. For example, in the past month, PIN is outperforming EPI by a slim margin with gains of 3.6% for the former and an increase of 2.8% for the latter. However, on a three-month timeline, the funds have performed almost identically. On a six-month and one-year timeline, EPI has outperformed PIN.