India ETN Fading
Most countries’ indexes have felt the pressure over the past few months due to massive selling. India, seemingly, has taken the wind out of its own sails by passing a new set of rules designed to regulate the amount of foreign funds entering the country. INP, the ETN issued by Barclays that is designed to follow India’s Sensex has borne the brunt of the Indian government’s new regulations. Just a few months ago at its peak, INP was fetching a price of $120 per note. Today, the same stock’s price is going for $74.71. Lawrence Carrel at TheStreet.com has an article analyzing the situation. In it he states:
The SEBI [Securities and Exchange Board of India] also ruled that an investment instrument called a participatory note — a category of investments that includes ETNs — could no longer be based on derivatives by foreign institutional investors.
Unlike ETFs or other kinds of funds, ETNs don’t hold stocks or other securities. Essentially, they are backed by the issuer’s promise to match the return of an index, minus expenses.
That meant INP could no longer issue new shares. And now that the supply is fixed, the share price has been moving out of line with net asset value — sometimes wildly out of line. For example, on Friday, INP’s shares closed at $87.20, or a 3% premium to the daily indicative value of $84.81. This morning, the price tumbled down 16% to $72.93, but recovered to be down 5.5% at $82.50 by midday, a 2.7% discount to the indicative value of the underlying assets.
Shares have traded at a premium of as high as 25% over the past several months.
INP was a favorite of investors who wanted to buy index funds for emerging markets around the world, as recently as a few months ago. Now, INP is a highly volatile security that has been steadily trending down over the past few months. The Sensex itself has taken a massive beating in 2008, having given up nearly 30% of its value in the new year.
