Analyse: db x-trackers S&P CNX Nifty UCITS ETF

Reformen lassen auf eine Wiederbelebung der indischen Wirtschaft hoffen. Dieser ETF verschafft Anlegern den Zugang zu den wichtigsten Aktien des asiatischen Subkontinents.

Gordon Rose 22.02.2013

Rolle im Portfolio

The db x-trackers S&P CNX Nifty ETF provides equity exposure to India. As with all single country emerging market exposures, this db x-trackers ETF would be best deployed as tactical tool within a well diversified portfolio. The ETF can also be deployed as a core holding complementing exposure to emerging markets in Asia and Latin America. Increased correlation with international stock markets over the past years makes the ETF less beneficial from a diversification point of view. The index correlated 74% with the MSCI World USD Index and 85% with the MSCI EM USD Index over the last five years; up from 66% and 78% respectively over the trailing ten year period. As the correlation with China remains relatively low, the ETF might be utilised as diversifier for equity exposure to China. The index correlated 51% with the MSCI China CNY Index over the last five years.

The ETF is suitable for investors believing in a story rooted in robust domestic demand streaming from the relatively young and increasingly affluent population in India. In addition, investors overweighting China can use the ETF to diversify their exposure within the emerging market equity segment of their portfolio.

Fundamentale Analyse

In contrast to China and most developed markets, India has the benefit that its young, employable population is growing. However, the country still has a long way to go in modernizing its economy. Less than 10% of the working population is employed in a regulated job, leaving the remaining 90% without health and social insurance. With around 60% of its GDP coming from domestic sources, India is significantly more reliant on the development of its internal market than most emerging markets. In fact, domestic private consumption and investment are expected to remain the main drivers of GDP growth in the near future, although increased trade is expected to make a contribution at the margin as well. The country's large English-speaking workforce has made it a centre for the outsourcing of technology services; one of the more productive and export-oriented sectors of the economy.

India has long been one of the fastest growing economies in the world. However, the country’s GDP growth has slowed more recently. The government expects the economy to expand 5.7%-5.9% in the fiscal year ending March 2013, after forecasting a 7.6% growth rate earlier in 2012. India’s economy expanded by 6.5% in the fiscal year 2011/12 after growing by over 9.0% in the year before.

Up to now, the Reserve Bank of India hesitated to cut interest rates to boost growth on the back of a high CPI. However, inflation has remained well above the bank’s target of 5.0%, despite dropping to a 10-month low of 7.24% in November. In its most recent policy meeting, the RBI cut its key interest rate by 25bps to 7.75% and lowered the cash reserve ratio to 4.0%. One of the key impediments to growth facing the Indian economy is rampant corruption, which can make it difficult for entrepreneurs to start new businesses or expand operations. However, in a good sign for openness, India’s government announced earlier this year that qualified foreign investors will now be able to own, in aggregate, up to 10% of an Indian company, with a 5% limit on ownership by any individual foreign investor. Previously, only institutional investors were permitted to invest directly in Indian equities. However, there is much more work to do to liberalise the Indian market as foreign investors are still not allowed to access specific sectors.

In addition, the IMF has called for India to continuously liberalise foreign investment and address controversial tax regulations in order to improve confidence amongst investors and boost capital inflows. The government recently took some of the most significant reforms since opening its economy over 20 years ago as it eased foreign investment restrictions in the retail, aviation and broadcasting industries. The most crucial reform was the decision to allow foreign investment in multibrand retail. It also encouraged overseas investment in insurance and opened up the pension sector. Such steps could boost India’s medium-term growth prospects.


The S&P CNX Nifty Index provides exposure to Indian equities, representing the largest and most liquid stocks in the country. The index is market capitalisation weighted, including 50 of the 935 stocks listed on the National Stock Exchange of India Ltd (NSE). This represents approximately 60% of the overall market capitalisation of the country. The constituents are spread across over 20 sectors and thereby offer well-diversified access to the Indian stock market. To be considered, component stocks have to meet three criteria. The stocks have to be liquid, taking impact costs as a measurement; the constituents have to have a six-month average market capitalisation of at least Rs 5bn and at least 12% of its stocks must be available to investors. The index is calculated real-time during market hours and is reviewed quarterly with a 6 week notice given to markets before the changes will be made in the index. As of writing, financials (29% of the index’s value) is the biggest sector allocation, followed by Energy (12%) and IT (12%). The index is very top heavy, with the top ten holdings representing about 55% of the index’s value.


The db x-trackers S&P CNX Nifty UCITS ETF uses swap-based replication methods to track the S&P CNX NIFTY Index. The fund uses funded swaps. Specifically, db x-trackers passes cash received from investors to the swap counterparty (always Deutsche Bank). In return, Deutsche Bank contracts to deliver db x-trackers the index’s performance, and pledges collateral to the ETF’s pooled account at db x-trackers’ custodian, State Street. . The marked-to-market value of this basket is reviewed on a daily basis to ensure that it doesn’t fall under regulatory limits. In line with UCITS III requirements, counterparty exposure mustn’t exceed 10% of the fund’s NAV, i.e. the substitute basket must represent at least 90% of the fund’s NAV at all times. In reality, db x-trackers resets swaps to zero whenever (i) the exposure to the swap counterparty reaches 5% of the fund’s NAV and/or (ii) whenever there is a subscription/redemption at the fund level. Resetting swaps to zero eliminates (temporarily) counterparty exposure. db x-trackers doesn’t engage in securities lending within this ETF, which limits counterparty risk. The fund’s substitute basket typically consists of highly liquid blue chip stocks from OECD countries, including European, US and Japanese equities. It is held in ring-fenced accounts at the funds’ custodian, State Street Bank Luxembourg or the funds’ collateral manager, Bank of New York Mellon Luxembourg and reviewed daily by State Street Global Advisors (SSgA).


The fund levies a total expense ratio of 0.85%. This falls in the upper range of ETFs in line with other ETFs racking the Indian stock market. Other potential costs associated with holding this fund which are not included in the TER include swap costs, bid-ask spreads and brokerage fees.


In Europe, as of writing there are a few ETFs offering equity exposure to India. Most of the indices are tracking either the MSCI India Index or the S&P CNX Nifty Index. The largest alternative in terms of total assets under management is the swap-based Lyxor ETF MSCI India. The MSCI India Index is a free-float-adjusted market capitalisation index, representing about 85% of the NSE. Therefore, the Lyxor ETF represents a slightly bigger share of the Indian economy. Investors interested in a more like-for-like alternative will find the iShares S&P CNX Nifty India Swap, tracking the same index as the ETF discussed here. The iShares ETF also uses synthetic replication and levies a TER of 0.85%.

In Hong Kong and Singapore, in addition to this ETF (03015, listed in Hong Kong; HE0, listed in Singapore), there are 2 other ETFs tracking the S&P CNX Nifty Index. Both of these ETFs use synthetic replication: Lyxor ETF India (S&P CNX NIFTY) (FC6, listed in Singapore and London, TER 0.85%) and XIE Shares India (S&P CNX Nifty) ETF (03091, listed in Hong Kong, TER 0.39%)

Über den Autor

Gordon Rose  ist ETF-Analyst bei Morningstar.