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ETF Digest

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India remains one of the world's fastest growing economies while also being a democracy. The middle class continues to expand as western companies continue, albeit more slowly, to outsource many jobs to the country. Like other fast growing economies, when growth becomes too hot, inflation issues rise to the surface. When this happens, equity markets tend to become volatile and may suffer more than with other developed markets. With higher betas, (volatility) you tend to always see outperformance on the upside, but the opposite when conditions deteriorate.

The country's demographics argue for good consumer opportunities as well as high infrastructure improvements. The Indian government, owing to its socialist past, continues to move forward, but is still often constrained by the entrenched bureaucracy. 

The New Year saw major India markets gaining nearly 20% January-February. In March, nearly half of those gains were wiped out as fears of inflation and government tightening hit markets hard. India isn't self-sufficient in energy and is dependent on OPEC countries for product which is a major reason the country has refused to join any serious sanctions on Iran.

The RBI (Reserve Bank of India) has hiked interest rates 13 times since March 2010, to tame demand and curb inflation. There is concern about the sharp depreciation in the rupee, which weakened by over 15% against the U.S. dollar during 2011. But now there is hope with inflation falling below 7% that interest rate hikes will end for now. This remains to be seen.

There are currently only 10 ETFs to evaluate for India making a list of "Top 10s" seem rather silly but then that's the way we roll for now. Most investors could probably deal successfully with just three choices for now until AUM (assets under management) build and markets season.

We feature a technical view of conditions from monthly chart views. Simplistically, we recommend longer-term investors stay on the right side of the 12-month simple moving average. When prices are above the moving average, stay long, and when below, remain in cash or short. Some more interested in a fundamental approach may not care so much about technical issues preferring instead to buy when prices are perceived as low and sell for other reasons when high, but this is not our approach.

Members to the ETF Digest

receive added signals when markets become extended such as DeMark triggers to exit overbought/oversold conditions.

For traders and investors wishing to hedge, leveraged issues are available from

Direxion

and generally, but not precisely, should trend with EPI, INP and PIN.

#10: EG Shares India Consumer ETF

(INCO)

INCO follows the INDXX India Consumer Index which naturally follows consumer related stocks listed on the Bombay and National Stock Exchange. The fund was launched in August 2011. The expense ratio is .89%. AUM equal $2 million and trading volume is less than 3K shares. As of late March 2012 the annual dividend yield was nil and YTD return was 16.71%. The one year return was not yet available.

Given the newness of the ETF there really is little to say about it at this time. Naturally with a high population and rapidly growing middle class the demographics suggest this sector should provide good long-term returns. Nevertheless investors must be wary of a fund with such low assets given that as a business model for the issuer it just might be a loser.

Data as of First Quarter 2012

INCO Top Ten Holdings & Weightings

    Hindustan Unilever Ltd. (HINDUNILVR): 7.79%

    Hero MotoCorp Ltd (HEROMOTOCO): 5.99%

    Bajaj Auto Ltd. (BAJAJ-AUTO): 5.89%

    Colgate-Palmolive (India) Ltd. (COLPAL): 5.86%

    ITC Ltd. (ITC): 5.58%

    Nestle India Ltd. (NESTLEIND): 5.56%

    Dabur India Ltd. (DABUR): 5.16%

    Mahindra & Mahindra Ltd. (M&M): 4.91%

    Asian Paints Ltd. (ASIANPAINT): 4.82%

    Titan Industries Ltd. (TITAN): 4.62%

    #9: Guggenheim BRIC ETF

    (EEB)

    EEB follows the Bank of NY Mellon BRIC Select ADR which includes India with Russia, India and China. We've featured this in other related sectors but with the absence of other available India-based ETFs include it here. The fund was launched in September 2006. The expense ratio is .60%. AUM equal $542 million and average daily trading volume is 60K shares. As of late March 2012 the annual dividend yield was 3.50% and YTD return 12.77%. The one year return was 10.19%.

    Here too, even less exposure to India; hence, the lower ranking.

    Data as of First Quarter 2012

    EEB Top Ten Holdings & Weightings

      Vale S.A. ADR (VALE): 10.73%

      Petroleo Brasileiro SA Petrobras ADR (PBR.A): 7.66%

      China Mobile Ltd. ADR (CHL): 7.44%

      Petroleo Brasileiro SA Petrobras ADR (PBR): 6.39%

      Companhia de Bebidas das Americas Ambev ADR (ABV): 5.16%

      Itau Unibanco Holding SA ADR (ITUB): 5.14%

      Banco Bradesco SA ADR (BBD): 4.28%

      CNOOC, Ltd. ADR (CEO): 4.26%

      PetroChina Company, Ltd. ADR (PTR): 3.36%

      Baidu, Inc. ADR (BIDU): 3.04%

      #8: First Trust Chindia ETF

      (FNI)

      FNI follows the ISE Chindia ETF which consists of 50 ADRs and or stocks of companies domiciled in China or India. The fund was launched in May 2007. The expense ratio is .60%. AUM equal $93 million and average daily trading volume is 28K shares. As of late March 2012 the annual dividend yield was 1.35% and YTD return 20.56%. The one year return was -11.49%.

      The ranking is somewhat lower due to only partial exposure to India with China the more dominant weighting. For my money, if you want India, buy India.

      Data as of First Quarter 2012

      FNI Top Ten Holdings & Weightings

        China Mobile Ltd. ADR (CHL): 9.59%

        Baidu, Inc. ADR (BIDU): 9.25%

        HDFC Bank Ltd ADR (HDB): 7.26%

        Infosys Ltd ADR (INFY): 7.03%

        CNOOC, Ltd. ADR (CEO): 7.02%

        ICICI Bank Ltd ADR (IBN): 5.42%

        PetroChina Co Ltd ADR (PTR): 4.67%

        Tata Motors, Ltd. ADR (TTM): 3.77%

        SINA Corporation (SINA): 3.63%

        Wipro, Ltd. ADR (WIT): 3.43%

        #7: EG Shares India Small Cap ETF

        (SCIN)

        SCIN follows the INDXX India Small Cap Index which is a free float market capitalization weighted index of 75 companies in the small cap India sector. The fund was launched in July 2010. The expense ratio is .85%. AUM equal $29 million and average daily trading volume is 20K shares. As of late March 2012 the annual dividend yield was .01%% and YTD return 30.23%. The one year return was -20.64%.

        Here too the bottom line is longer term investors have just seen large losses and gains ending in zero returns with a lot of volatility.

        Data as of First Quarter 2012

        SCIN Top Ten Holdings & Weightings

          MRF Ltd. (MRF): 3.45%

          Rajesh Exports Ltd. (RAJESHEXPO): 3.43%

          Havells India Ltd. (HAVELLS): 3.21%

          Dish TV India Ltd. (DISHTV): 2.88%

          Gujarat Mineral Development Corporation (GMDCLTD): 2.66%

          Hexaware Technologies Ltd. (HEXAWARE): 2.64%

          Bombay Rayon Fashions Ltd. (BRFL): 2.62%

          Indian Bank (INDIANB): 2.57%

          Chambal Fertilisers & Chemicals Ltd. (CHAMBLFERT): 2.42%

          Videocon Industries Ltd. (VIDEOIND): 2.37%

          #6: Van Eck India Small Cap ETF

          (SCIF)

          SCIF follows the Market Vectors India Small Cap Index which is proprietary and measures what it determines as small cap equities generating most of their revenues from India. The fund was launched in August 2010. The expense ratio is .85%. AUM equal $54 million and average daily trading volume is 71K shares. As of late March 2012 the annual dividend yield was 1.28%% and YTD return 37.34%.

          The one year return was -24.46%. The overall performance indicates high volatility with a market basically returning nothing for long-term investors which is why trading can be important.

          Data as of First Quarter 2012

          SCIF Top Ten Holdings & Weightings

            Hexaware Technologies Ltd. (HEXAWARE): 3.16%

            Rediff.com India, Ltd. ADR (REDF): 2.89%

            South Indian Bank Ltd. (SOUTHBANK): 2.75%

            Rajesh Exports Ltd. (RAJESHEXPO): 2.72%

            UTV Software Communications Ltd. (UTVSOF): 2.61%

            Era Infra Engineering Ltd. (ERAINFRA): 2.49%

            Punj Lloyd Limited (PUNJLLOYD): 2.44%

            IFCI Ltd. (IFCI): 2.26%

            Sintex Industries Ltd. (SINTEX): 2.16%

            Educomp Solutions Ltd. (EDUCOMP): 2.06%

            #5: EG Shares India Infrastructure ETF

            (INXX)

            INXX follows the INDXX India Infrastructure Index which is includes the leading 30 companies involved construction, engineering and utilities to name a few. The fund was launched in November 2010. The expense ratio is .85%. AUM equal $57 million (which compares poorly with $81 million in July and mostly from a NAV decline like others) and average daily trading volume is less than 18K shares.

            As of late March 2012 the annual dividend yield was .54%% and YTD return 26.03%. The one year return was -19.65%.

            Data as of First Quarter 2012

            INXX Top Ten Holdings & Weightings

              Tata Motors, Ltd. (TATAMOTORS): 6.23%

              Power Grid Corporation Of India Ltd. (POWERGRID): 6.02%

              Idea Cellular Ltd. (IDEA): 5.42%

              NTPC Ltd. (NTPC): 5.31%

              GAIL India Ltd. (GAIL): 5.28%

              Tata Power Co., Ltd. (TATAPOWER): 5.09%

              Bharti Airtel Ltd. (BHARTIARTL): 5.03%

              ACC Limited (ACC): 4.96%

              Ambuja Cements Ltd. (AMBUJACEM): 4.86%

              Ultra Tech Cement Ltd (ULTRACEMCO): 4.76%

              #4: iShares India Nifty 50 ETF

              (INDY)

              INDY follows the S&P CNX Nifty Index which includes the 50 largest India stocks. The fund was launched in November 2009. The expense ratio is .89%. AUM equal $336 million and average daily trading volume is 145K shares. As of late March 2012 the annual dividend yield was .52%% and YTD return 17.62%. The one year return was -17.04%.

              Data as of First Quarter 2012

              INDY Top Ten Holdings & Weightings

                Infosys Ltd (INFY): 9.51%

                Reliance Industries Ltd. (RELIANCE): 8.34%

                ITC Ltd. (ITC): 7.73%

                Housing Development Finance Corporation Ltd. (HDFC): 6.25%

                ICICI Bank Ltd. (ICICIBANK): 5.68%

                HDFC Bank Ltd (500180): 5.55%

                Tata Consultancy Services Ltd. (TCS): 4.21%

                Larsen & Toubro Limited (LT): 3.84%

                Hindustan Unilever Ltd. (HINDUNILVR): 3.05%

                State Bank of India (SBIN): 3.04%

                #3: PowerShares India ETF

                (PIN)

                PIN follows the Indus India Index which is intended to track the India market as a whole but includes 50 companies which represent all sectors. The fund was launched in March 2008. The expense ratio is .78%. AUM equal $402 million and average daily trading volume is 637K shares. As of late March 2012 the annual dividend yield was .09% and YTD return 13.22%. The one year return was -18.81%.

                Data as of First Quarter 2012

                PIN Top Ten Holdings & Weightings

                  Infosys Ltd (INFY): 9.93%

                  Reliance Industries Ltd. (RELIANCE): 9.79%

                  Oil & Natural Gas Corporation Ltd. (ONGC): 8.01%

                  Hindustan Unilever Ltd. (HINDUNILVR): 5.13%

                  Bharti Airtel Ltd. (BHARTIARTL): 4.32%

                  Tata Consultancy Services Ltd. (TCS): 4.22%

                  HDFC Bank Ltd (500180): 3.91%

                  NTPC Ltd. (NTPC): 3.40%

                  Wipro, Ltd. (WIPRO): 3.04%

                  Housing Development Finance Corp Ltd. (HDFC): 2.75%

                  #2: Barclays iPath India ETN

                  (INP)

                  INP follows the MSCI Total Return Index which represents 85% fo the free-float-adjusted market capitalization of equities by industry group within India. The fund was launched in December 2006. The expense ratio is .89%. AUM equal $522 million and average daily trading volume is 105K shares.

                  As of late March 2012 the annual dividend yield was nil and YTD return 19.69%. The one year return was -19.01%.

                  Data as of First Quarter 2012

                  INP Top Ten Holdings & Weightings

                    Reliance Industries Ltd. (RELIANCE): 12.97%

                    Infosys Technologies, Ltd. (INFY): 10.11%

                    ICICI Limited (ICICIBANK): 6.27%

                    Housing Development Finance Corporation Ltd. (HDFC): 5.40%

                    HDFC Bank, Ltd. (500180): 4.53%

                    Tata Consultancy Services Ltd. (TCS): 3.00%

                    Larsen & Toubro Limited (LT): 2.98%

                    Sterlite Industries (India), Ltd. (STER): 2.98%

                    Oil & Natural Gas Corporation Ltd. (ONGC): 2.86%

                    ITC Ltd. (ITC): 2.61%

                    #1: WisdomTree India ETF

                    (EPI)

                    EPI follows the WisdomTree India Earnings Index which is a fundamentally weighted index based primarily on companies within India achieving a high level of consistent earnings growth. The fund was launched in February 2008. The expense ratio is .83%. AUM (Assets under Management) equal $923 million and average daily trading volume is 2.6M shares. As of late March 2012 the annual dividend yield was .84%% and YTD return 22.56%. The one year return was -19.06%.

                    Data as of First Quarter 2012

                    EPI Top Ten Holdings & Holdings

                      Infosys Ltd (INFY): 8.20%

                      Reliance Industries Ltd. (RELIANCE): 8.18%

                      Oil & Natural Gas Corporation Ltd. (ONGC): 5.47%

                      Tata Motors, Ltd. (TATAMOTORS): 4.21%

                      Housing Development Finance Corp Ltd. (HDFC): 3.60%

                      Tata Consultancy Services Ltd. (TCS): 2.63%

                      ICICI Bank Ltd (ICICIBANK): 2.52%

                      State Bank of India (SBIN): 2.02%

                      HDFC Bank Ltd (500180): 1.95%

                      Bharti Airtel Ltd. (BHARTIARTL): 1.84%

                      We rank these 10 ETFs by our proprietary stars system as outlined below. As new ETFs are issued we'll evaluate them if they're linked to a known index with good historical data. If there is little data new issues will require some seasoning to attract our interest. If you have to know more about our systems and trading regimes please send an inquiry to

                      support@ETFDigest.com

                      and we'll attempt to satisfy your interest.


                      Strong established linked index

                      Excellent consistent performance and index tracking

                      Low fee structure

                      Strong portfolio suitability

                      Excellent liquidity


                      Established linked index even if "enhanced"

                      Good performance or more volatile if "enhanced" index

                      Average to higher fee structure

                      Good portfolio suitability or more active management if "enhanced" index

                      Decent liquidity

                      Enhanced or seasoned index

                      Less consistent performance and more volatile

                      Fees higher than average

                      Portfolio suitability would need more active trading

                      Average to below average liquidity

                      Index is new

                      Issue is new and needs seasoning

                      Fees are high

                      Portfolio suitability also needs seasoning

                      Liquidity below average

                      ETF choices from India will continue to expand but perhaps at a slower pace than in other countries owing to stiffer regulatory burdens. For example, futures trading and short selling are still frowned upon by authorities. Any new offerings may seem seductive but may need seasoning before investors can verify performance trends and validate investing in them. We've chosen to feature some that may be repetitive but clearly have something to offer as well. Some other Top 10 lists we've published may have similar ETFs within them and can become duplicative but we'll just have to live with this on occasion.

                      One thing seems clear when viewing these ETFs many offer similar trend patterns. This is primarily due to how well the overall India market is trending with little variation among sectors. After all with globalization and easy monetary conditions throughout the world allows for higher correlations with and within markets.  India is either dealing with inflation and higher energy prices or with global economic contraction. Overall this leads to poor trending conditions.

                      It's also important to remember that ETF sponsors have their own competitive business interests when issuing products which may not necessarily align with your investment needs. New ETFs from highly regarded and substantial new providers are also being issued. These may include Charles Schwab's ETFs and Scottrade's Focus Shares which both are issuing new ETFs with low expense ratios and commission free trading at their respective firms. These may also become popular as they become seasoned and/or are linked to existing indexes which are easily tracked. 

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                      The ETF Digest has a lazy position with EPI.

                      The opinions and/or guidance provided herein should not be construed as investment advice and are merely the general opinion of the ETF Digest.

                      (Source for data is from various sponsors and other data providers.)

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