Barclays INP-great way to Play India

Barclays newly launched ETN, symbol INP, is an excellent solution for people who have been wanting to play India but didn't want to buy ADRs trading in the US because of their premiums over domestic shares, and closed end funds like IIF and IFN being poor performers because of excessive management fees (2%!) and hefty taxable dividends (the fund manager having a field day churning...).

INP is an exchange traded note. It is different from ETFs in that it doesn't represent actual ownership of shares. However, since it is a debt security and not an equity, there's little risk in it having no value. Even if Barclays files for bankrupcy some day chances are high that the Debt will be recovered in a good percentage. Evan Barings going under a couple of decades ago didn't result in loss of debt at Barings-the shares went to nought but the debt was honored by the acquirer (ING of Amsterdam).

It is also plausible that INP will trade at a premium to the underlying returns on the MSCI Barra India Index. Why? Right now the only options for American investors to buy Indian stocks have been the abovementioned two ways-ADRs or closed end funds-and since both are trading at a premium, INP should also trade at a premium. Note that the closed end funds trade at a premium to their NAV.

Indian stocks look great going into 2007. Bank stocks in India (IBN, HDB and State Bank of India-traded in India) look cheap in comparison to their counterparts in China-and it is quite possible that over the next few months the Banking shares will rally and lead the market higher.

Happy New Year!

Sanjay