For many years, China dominated the emerging markets spotlight. At one point, it commanded a weight of nearly one-third of the market capitalization of major indexes. These days, the country has a somewhat reduced representation in cap-weighted indexes, but many see another rising emerging markets star on the horizon – India.
There are several things in the country’s favor. Prime Minister Narendra Modi is a pro-business leader and has instituted key reforms. India also recently claimed the crown of the most populous country from China, with a much younger citizenry – which translates into favorable demographics.
Today, it represents nearly 16% of the MSCI Emerging Markets Investable Market Index, and Goldman Sachs recently forecast that India would become the world’s second-largest economy by 2075.
There are currently 15 ETFs targeting India’s markets. However, investors seem to be wary of getting granular when it comes to investing in the country. While all of the broad market unleveraged ETFs have more than $100 million in assets under management, more targeted strategies seem to have largely missed out on investor interest, unless they’re the $277 million iShares MSCI India Small-Cap ETF (SMIN), which incidentally is up 14.32% so far in 2023.
Interestingly, most of these more specific funds have outperformed the broad Indian market as represented by the $5.2 billion iShares MSCI India ETF (INDA) in 2023 – sometimes by significant margins. There are several ETFs targeting slices of India’s markets that have been overlooked by investors, though their performance has been pretty strong relative to the broad market.
Consumers & Growth
The largest of these ETFs is the $97.8 million Columbia India Consumer ETF (INCO), and it’s no wonder it’s drawn the most investor interest. It targets companies serving the Indian consumer, a growing demographic as the country sees its wealth increase, with a strengthening middle class that has disposable income. The fund has a year-to-date return of 17.6% versus a 6.2% increase for INDA. INCO holds securities representing 30 companies and has an expense ratio of 0.75%.
The $54.7 million VanEck India Growth Leaders ETF (GLIN) has almost $55 million in assets under management and an expense ratio of 0.77%. The fund targets India’s growth companies and has a total of 85 holdings, with the information technology and financials sectors representing 23.4% and 20.4% of the portfolio, respectively. GLIN is up 12.5% YTD, doubling INDA’s return during the same period.
The Nifty India Financials ETF (INDF) only has $7 million. It’s not yet three years old and covers the 20 largest financial services companies in India. The small number of portfolio holdings could be off-putting to some investors. However, it has done fairly well, returning almost 11% year-to-date. INDF has an expense ratio of 0.75%.
One of these more narrow ETFs in terms of coverage is the WisdomTree India ex-State-Owned Enterprises Fund (IXSE), which excludes companies that are under government ownership or control. IXSE has a very similar sector breakdown to INDA. Both include finance as their largest sector. But while it represents nearly 27% of INDA’s portfolio, it only has a weighting of 20% in IXSE. The two funds also have fairly similar performance. IXSE leads INDA by a handful of basis points, with a return of 6.7% year to date. IXSE has an expense ratio of 0.58% and $6.7 million in assets.
Internet & Digitization
The India Internet & Ecommerce ETF (INQQ) is even smaller with less than $6 million in assets, though it only launched about a year ago. INQQ invests in companies operating in the internet and e-commerce spaces in India. The fund is up 18.5% year-to-date, the highest return of any ETF in the article. That’s also almost three times INDA’s return during the same period.
The VanEck Digital India ETF (DGIN) is the smallest of the funds with just $2.3 million. It targets companies helping to drive the digital revolution taking place within India’s economy. DGIN has 37 holdings in its portfolio. It’s up 12.77% year-to-date, and it comes with an expense ratio of 0.71%.
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