India and Its ETFs

When investors want to diversify and gain international exposure, many turn to Asia and in particular, China. However, neighboring India may be just as attractive. 

Some key items working in India’s favor include an expected growth rate of 6% for 2009 – driven primarily by public spending, an increase in auto and infrastructure demand, an increase in industrial production and strong equity markets.  In addition, business confidence is rising and the country’s financial markets, in terms of IPOs and debt origination, are coming back to life.

Another factor that makes India attractive is the importance that President Obama is placing on building a long- lasting relationship between India and the United States.  The United States is India’s largest trading partner and President Obama believes that building a strong relationship with the South Asian country will help re-build the U.S. economy and create jobs.

Lastly, factors such as capital flows, domestic demand, portfolio flows and a strong savings rate have India in a good position to continue moving forward.  A combination of the aforementioned has led some to believe that India will grow even faster, at a rate of 7% in 2010.

Things going against the nation are the inherent risks and volatility involved with investing in an emerging market, a weak monsoon season which has hindered agricultural output and a decline in exports.

Gaining access to the South Asian country is relatively easy through the following ETFs:

  • WisdomTree India Earnings Fund (EPI), which carries an expense ratio of 0.88 % and is based on an earnings-weighted index with 125 holdings.
  • iPath MSCI India Index (INP), which carries an expense ratio of 0.89% and is an exchange traded note based on the MSCI India Total Return Index, which has 59 constituents.
  • iShares S&P India Nifty 50 Index Fund (INDY), which carries an expense ratio of 0.89% and will invest in securities and depositary receipts of India’s 50 largest companies by market capitalization.

Additionally, to further diversify exposure to India, there are a couple of new ETFs in the pipeline.  The first is from Van Eck Global, which has registered a new ETF that will enable investors to gain exposure to small-cap stocks in India and will seek to replicate the performance of the Market Vectors India Small-Cap Index.  The second is from Emerging Global Shares, who is planning to launch the Dow Jones Emerging Markets Technology Titans Index Fund (EWT), which will have a 46% country weighting allocated to India.