India occupies the fifth position among the largest economies in the world, according to its Gross Domestic Product (GDP). Its market capitalisation is not negligible – over $3 trillion at press time.
There are multiple benefits of investing in the Indian economy, which we will discuss in this article, along with introducing you to a guide on choosing the best India ETFs.
The recent performance of the Indian economy has been promising, as demonstrated by a series of four charts provided by JPMorgan. The data reveals a downward trend in inflation, coupled with a decrease in the rate of delinquent loans. Notably, real GDP growth has not only remained in positive territory, but it also surpasses its ten-year average.
What are the benefits of investing in ETFs in India?
In the upcoming years, India stands a high chance of becoming the country with the world’s largest workforce, potentially accounting for around 24% of the global total. This trend is clearly illustrated in the graph that follows.
India’s demographic profile, with an average age of 28 years, bodes well for its economic prospects. Around 26% of the population is under 14 years old, with the rest falling within the 15 to 64 age bracket. This youthful demographic positions India as an attractive destination for the manufacturing sector and simultaneously bolsters the potential for robust internal consumption growth.
However, despite India’s considerable appeal, several global corporations have faced challenges. Obstacles often include local malpractices, bureaucratic hurdles, complex regulations, and even a shortage of qualified labour. Companies such as Amazon, Apple, Ford, Harley-Davidson, and Holcim have navigated these difficulties firsthand.
Interestingly, while the overall number of foreign companies registered in India has risen, the number of active foreign companies has actually declined as of 2021.
It is common in emerging markets and even more in India that foreign companies find it difficult to navigate the bureaucratic, regulatory and cultural maze. That is why investing in India is best done through local companies that have the know-how and relationships. And that is why ETFs with Indian companies in the portfolio are a better alternative to have exposure to that country.
In emerging markets, particularly in India, foreign companies often face challenges navigating the complex labyrinth of bureaucracy, regulations, and cultural nuances. Hence, investing in India is typically most effective when channelled through local companies that possess the necessary know-how and relationships. This makes ETFs in India an appealing alternative for gaining exposure to the Indian market.
What are the main indices that follow the Indian market?
India’s stock market is expansive, featuring over 6,500 listed companies and two primary exchanges: the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).
Given the market’s vast scope, numerous indices strive to track these companies, their sectors, and different capitalisations. The three principal ones are:
- Nifty 50: This index follows the 50 largest capitalised companies listed on the National Stock Exchange of India. The sectors with the highest weights are financial, technological and oil & gas.
- MSCI India: This index aims to represent the performance of the large and mid-cap segments of the Indian market. As such, it covers approximately 85% of the Indian equity universe.
- FTSE India: This index is designed to represent the performance of Indian companies, providing investors with a comprehensive and complementary set of indices that measure the performance of the major capital and industry segments of the Indian market.
7 best India ETFs
The following is a list of ETFs focused on India that have had the best performance in the last 3 years:
- Xtrackers Nifty 50 Swap UCITS ETF 1C
- TER: 0.85%
- 3-year return: 66.32%
- Ticker: DBX7
- iShares MSCI India UCITS ETF USD (Acc)
- TER: 0.65%
- 3-year return: 62.74%
- Ticker: QDV5
- Franklin FTSE India UCITS ETF
- TER: 0.19%
- 3-year return: 60.49%
- Ticker: FLXI
- Amundi MSCI India UCITS ETF USD
- TER: 0.80%
- 3-year return: 59.84%
- Ticker: 10A3
- Amundi MSCI India UCITS ETF EUR ©
- TER 0.80%
- 3-year return: 59.62%
- Ticker: 18MK
- Xtrackers MSCI India Swap UCITS ETF 1C
- TER: 0.75%
- 3-year return: 59.62%
- Ticker: XCS5
- Lyxor MSCI India UCITS ETF – Acc (EUR)
- TER 0.85%
- 3-year return: 58.20%
- Ticker: LYMD
If you want to invest in the best ETFs in India, get started by selecting one of the best ETF brokers.
Xtrackers Nifty 50 Swap UCITS ETF 1C
This ETF tracks 50 Indian blue chip companies – particularly the largest and the most liquid companies and covers 65% of the free-float market cap. It has a dividend yield of 1.33%
These are its main holdings:
iShares MSCI India UCITS ETF USD (Acc)
This ETF seeks to replicate the MSCI India index which tracks the mid and large-cap companies. At press time, it has a total of 115 companies in its portfolio.
The fund’s base currency is USD and it does not have currency coverage. It is domiciled in Ireland and its dividend policy is accumulation.
The fund is exposed to the following sectors:
The top 10 holdings are:
Franklin FTSE India UCITS ETF
The ETF seeks to follow the FTSE India 30 index which has large and medium capitalisation companies.
It has a full physical replication method. Its base currency is USD and it does not have currency coverage. It has an accumulation dividend policy and is domiciled in Ireland.
The main sectors covered are as follows:
Next, the fund’s top holdings are:
Where can I buy India ETFs?
The following table shows the top 4 brokers to buy India ETFs:
|Buy ETFs in India||More Information|
|Interactive Brokers||Interactive Brokers review|
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Best India ETFs: summary
In conclusion, as India marches towards becoming one of the world’s largest economies, the potential for growth and investment returns is promising. Investing in India through ETFs offers a strategic approach, leveraging the experience of local businesses and sidestepping the hurdles often encountered by foreign companies.
While challenges persist, opportunities abound across various sectors – financial, technological, energy, and industrial, to name a few. The key is choosing the right ETF that aligns with your investment goals and risk tolerance. Whether you opt for exposure through major indices like the Nifty 50, MSCI India, or FTSE India, your journey into the vibrant and dynamic landscape of the Indian market could be an exciting investment adventure.
What are the risks of investing in India?
As an emerging country, it comes with higher volatility and higher country risk represented by political instability, corruption, and others that could impact the economy and the stock market.
What are the main issuers of India ETFs?
The issuers with the largest assets under management that have ETFs focused on India are iShares, Lyxor, and Franklin Templeton.
Are India ETFs a good investment?
As with any other investment, India ETFs carry risks. It is important to do your due diligence before risking your capital and craft a sound risk management strategy.