Investors pour into India ETFs ahead of election result

Investors poured money into exchange-traded funds that buy stocks of Indian companies, powering one of the year’s most popular trades yet again as recent exit polls predict Prime Minister Narendra Modi will win a third term on Tuesday.

India recorded the biggest inflow across emerging markets for the week ended May 31 — of $307.5 million — led by iShares MSCI India ETF (ticker INDA). While the fund garnered $192.9 million, the WisdomTree India Earnings Fund (EPI) pulled in $82.6 million.

The South Asian nation will announce election results Tuesday, though markets already expect Modi, a more market-friendly politician, to secure a third-term victory. Exit polls released Saturday predicted a landslide victory for Modi’s Bharatiya Janata Party and its allies.

If Modi secures another win, markets expect the government to push through policies that could further boost India’s economic growth, which is already among the world’s fastest, said Ashish Chugh, head of global emerging-market equities and a portfolio manager at Loomis Sayles & Co.

“If the exit polls are correct, the margin of victory for the BJP led NDA alliance should be quite strong,” Chugh said. “This implies a continuation of Modi’s pro-growth, investor-friendly policies which has made India one of the best equity markets globally over the past decade since Modi came to power.”

In the long term, Indian stocks will continue to look attractive given the government’s pro-growth policies, the nation’s structural growth story and the attractive returns on capital, said Chugh. Almost half of the Loomis Sayles Emerging Markets Equities strategy’s exposure is to Indian equities, he added.

Indian markets rallied Monday ahead of official results the next day. The NSE Nifty 50 Index rose 3.3% — its biggest surge in over three years — while the rupee was one of the best performing currencies in Asia on Monday. The rally was also boosted by data that came after market hours Friday showing faster-than-expected economic growth.

Apart from India, investors sought opportunities in some US-listed emerging market ETFs that invest across developing nations — as well as those that target specific countries — bringing inflows for the week ended May 31 to $268.9 million. That’s compared with gains of $1.73 billion in the previous week, according to data compiled by Bloomberg.