Nifty Fifty Up 1% – Is The INDY ETF The Way To Trade This?

It's possible that the iShares S&P India Nifty Fifty Index ETF (NASDAQ: INDY) is the right way to trade that main Indian stock exchange index. We should note here that the Nifty Fifty being talked about is the 50 major stocks on the main Indian exchanges, not the historical and informal grouping of major stocks from the 60s and 70s on the American markets.

The thing about the Indian exchanges is that they are markedly volatile. So, there's a lot of price movement – this is the same statement of course, volatility and price movements. Volatility is what traders look for, for only if prices move is it possible to take a profit off the table. That does also require being on the right side of the price movement of course.

It's also true that we might well not want to be dealing in individual Indian stocks. Apart from anything else heading the currency risk wouldn't be the easiest thing in the world. At which point, if there were an index fund, quoted in dollars, then that might suit. And there is just such an option, the iShares S&P India Nifty Fifty Index ETF.

Also Read: Best Performing ETF With Dividends for Your Portfolio

This isn't a leveraged fund, so it is something that can be held for a period of time. We're always careful to point out that leveraged funds given that they have to use options to gain the gearing, simply are not for long term holdings. The price of that leverage is that the fund will lose value over time. But an ETF which is simply holding the major stocks doesn't face that problem. It's also true that trading costs are likely lower than if we tried to replicate the index ourselves, or even to cover the FX risks.

Exposure to the Nifty Fifty is exposure to those main components of the Indian markets. That might be something we're uncomfortable with, now knowing all that much about the individual stocks. That's why a fund of course. On the other hand diversification is our friend in investing, so being exposed to markets that may be in different parts of the business cycle is not bad thing. Plus, we all think that India is both growing strongly and will probably continue to do so.

So, exposure to an ETF holding those major big cap Indian stocks might suit on an investment basis.

There is also one more thing. Trading volumes in the INDY ETF aren't that large, perhaps 50k pieces a day. That means that there might be an arbitrage available here as well. For India is, as we all know, in a different time zone. So there's a possibility – no more than that, a possibility – that the US price won't accurately reflect the Indian one early on in the day. Indian trading ends during the early part of the US day (ten and a half hours ahead usually). The early part of the US day might see very thin trading in INDY. Which could mean that prices diverge slightly in that time of low volumes, to then reach par later as volumes increase.

As a trading strategy this needs much more research. But that combination of time zones and light liquidity might make it viable.