Eyes on India

03/01/2016 10:00 am EST


Mark Salzinger

Editor and Publisher, The No-Load Fund Investor

Despite calendar-year losses in three of the past five years, Indian stocks as a group have been among the best performing emerging market stocks, observes Mark Salzinger, editor of The Investor’s ETF Report.

India is expected to generate the fastest economic growth of any large nation in both 2016 and 2017. The World Bank estimates its real GDP growth to be 7.9% and 8.0% over the next two years, respectively.

Much of that growth potential is a function of how much development India has left to do. India has more than 1.2 billion people. However, its per capita income in 2014 was only 42% of China’s.

Fully half of Indian labor is employed in agriculture, which has lower crop yields relative to other major agriculture exporters and unsustainable irrigation, supported by inadequate infrastructure.

At the same time, India benefits from a large, young population, a large proportion of which speaks English.

India has been buoyed recently by two factors. First, its largest export market is the United States, to which more than 13% of its exports flow.

Second, India imports about 70% of its oil. Recent declines in oil prices have allowed the Indian government to reduce fuel subsidies.

There are three ETFs that offer pure exposure to India stocks. The iShares MSCI India (INDA) is the largest, with more than $3.4 billion in assets.

It is also the least complex. It tracks a market-cap weighted index made up of the largest Indian stocks. Recently, INDA had 74 individual holdings.

Technology stocks are heavily represented (about 22% of the portfolio. Financials, healthcare, consumer discretionary, staples, and energy all get between 10% and 15%.

PowerShares India (PIN) and iShares India 50 (INDY) both invest in a portfolio of 50 large Indian companies.

INDY’s portfolio resembles INDA’s, only more concentrated. PIN’s portfolio has more in energy stocks (22%), though technology (21%) remains significant.

WisdomTree India Earnings (EPI) weights its holdings according to their total annual earnings, but adjusts weightings to reflect the availability of shares to foreign investors.

The resulting portfolio favors financials (23%) over technology and energy (each 19%). No other sector gets more than 9% of the portfolio. EPI has the broadest portfolio, holdings 236 stocks recently.

Of these, we favor INDA. It is more thoroughly diversified by sector than any of its peers, has a larger asset base, and a lower expense ratio (0.68%, vs. at least 0.83% for its peers).

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