Once-bitten-twice-shy investors are understandably pensive about allocating to emerging markets, particularly when the broad-based strategies populating this investment universe continue disappointing.
However, there are beacons of opportunity in developing economies, highlighting the potential allure of single-country exchange traded funds. India is part of this conversation. Investors can access Asia’s third-largest economy in tactical fashion with the VanEck Digital India ETF (DGIN).
DGIN debuted earlier this year and follows the MVIS Digital India Index. The ETF’s focus on the increasing digitization of the Indian economy makes it one of the most relevant ideas in this category.
“As the MSCI India index gained 9.3% in July – outperforming all other emerging market indices – domestic investors continue to show growing confidence in Indian equities, diversifying their savings into equities and away from the more traditional choices of gold, real estate and fixed income,” according to BNP Paribas research.
Obviously, July performance is in the past, but for investors considering DGIN, it could be encouraging that their counterparts in India are eschewing gold and real estate in favor of equities. Should that trend prove durable, it could be a long-term positive for DGIN because locals embracing stocks has often moved in fits and starts in India.
Add to that, India offers some of the most attractive long-term economic data in the world, which could be supportive of the growth-heavy portfolio found in DGIN.
“While one strong month is no guarantee of longer-term performance, the broad-based strength underscores the Indian government’s target of growing the economy from the current USD 3 trillion size to USD 5 trillion in the next 5-7 years. That translates into a compound nominal annual growth rate of a sizeable 10%-12%,” added BNP Paribas.
DGIN allocates 64.1% of its weight to technology stocks, while the communication services and consumer discretionary sectors combine for 23.4%, according to issuer data. Those sector weights are important because they confirm that DGIN is more than adequately levered to India’s budding tech/internet story.
“Investors considering Indian equities have a wide range to choose from. The country’s equity markets are valued at USD 3.5 trillion – among the world’s seven largest markets – with more than 100 companies exceeding USD 1 billion in market capitalisation. Small and mid-cap companies represent some 30% of the market, and there are more than 500 start-up and entrepreneurial companies across 25 sectors,” concluded BNP Paribas.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
