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Just over a year ago I profiled India and the opportunities that lie in one of the world’s most populous countries. But India has been a volatile market over the last year, which has made owning individual securities less enticing for investors.
However, investing in India isn’t a one-year or even a five-year plan. It’s an option for investors with a multi-decade horizon. But, nonetheless, it’s still very enticing.
Famed money manager Jeffrey Gundlach of DoubleLine Capital said late last year, “Buy India … and don’t look at your statement for 25 years.”
India is on pace to pass China as the most populous and fastest-growing country in the next couple years. And the country already has pro-business Narendra Modi as its prime minister. At the end of last month, India revealed a fiscal plan that gave Indian stocks a boost, but the long-term impact shouldn’t be overlooked.
The fiscal plan looks to keep India growing without having to take on more debt. One of the key staples of the plan is to help the rural parts of the country where impoverishment is still rampant. The budget also ups public investment in India’s infrastructure by over 20%.
India’s population is largely composed of young people that are interested in technology, banking and buying homes and cars. The Indian auto market is very enticing – so much so that General Motors (NYSE: GM) is making a big bet on the country. Recall that the U.S. and India strengthened relations last year, giving India a stable and reliable trade partner.
But if you want to take some of the risk out of owning individual Indian equities, ETFs are enticing. Here are the top three ways to invest in India without the risk of owning individual securities.
Biggest Is Best
The biggest and most popular India-focused ETF is the iShares MSCI India ETF (BATS: INDA), which is down 20% over the last year. It owns around 75 India-based stocks and is also the cheapest ETF (in terms of fees) among India-focused ETFs.
The top holdings for this exchange-traded fund are names like Infosys Ltd. (NYSE: INFY), Housing Development Finance Corp. and Tata Consultancy Services Ltd. Both Infosys and Tata are in the fast-growing information technology sector.
There’s a smart beta option as well: WisdomTree India Earnings Fund (NYSEArca: EPI). This is a more unique play. It invests based on earnings, rather than market cap. But it’s also down 20% over the last year and the fees are higher than the iShares MSCI India ETF.
Small-Cap Bet
The top small-cap India fund is the iShares MSCI India Small-Cap ETF (BATS: SMIN). Despite the worry that small caps are more volatile, the small-cap India fund is only down 11% over the last 12 months.
The beauty of the fund is that it’s a big bet on the economy within India. The larger-cap stocks tend to be big bets on India’s export market, while small caps are instrumental for growth within the local economies.
The biggest bets for the iShares MSCI India Small-Cap ETF include IT company Mindtree Ltd., electrical equipment company Havells India Ltd. and Federal Bank Ltd. – all of which trade on the National Stock Exchange of India. So this ETF is one of the only ways for U.S. investors to buy into the local Indian economy at a reasonable price.
The turnover in India-focused exchange-traded funds is the lowest among major country ETFs. Investors are taking a buy-and-hold approach with India and appear to be gearing up for the possible multi-decade upswing that Gundlach has alluded to.
Both of the iShares ETFs are interesting, with the larger-cap offering being a bit cheaper, while the small-cap play offers more of a pure-play on the local economy.
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