Invest In India's Economic Boom Via 2 ETFs Delivering Regional Equity Exposure

  • Editor's Pick

India has one of the fastest growing economies in the world. The country is a member of the Group of Twenty (G20) intergovernmental forum, and the International Monetary Fund (IMF) expects its economy to grow 9.5% in 2021.

For comparison, the projected growth rates for several other countries are: Australia (3.5%), Brazil (5.2%), China (8.0%), Germany (3.1%), Ireland (13.0%), Israel (7.1%), Japan, (2.4%), Peru (10.0%), South Africa (5.0%), Turkey (9.0%), the UK (6.8%), and the U.S. (6.0%). The IMF further suggests:

“The global economy is projected to grow 6.0% in 2021 and 4.9% in 2022.”

Meanwhile, veteran investor Mark Mobius has recently reiterated his long-held conviction that Indian stocks should see significant upside in the coming years. He compared the country with where China was about a decade ago.

Recent metrics show that India’s services sector (especially telecommunications, IT and software) comprises about half of the gross domestic product (GDP), followed by industry (24.18%) and agriculture (18.32%). Close to a fifth of India’s exports go to the U.S. Its other leading trading partners include China, United Arab Emirates, Hong Kong, Singapore, Bangladesh, the UK, Germany, the Netherlands and Malaysia.

With that information, here are two exchange-traded funds (ETFs) that could appeal to readers bullish on India. Both funds come from the iShares range of funds managed by BlackRock (NYSE: BLK ).

1. iShares MSCI India ETF

  • Current Price: $50.00
  • 52-Week Range: $35.66 - $50.80
  • Dividend Yield: 0.15%
  • Expense Ratio: 0.69% per year

The iShares MSCI India ETF (NYSE: INDA ) invests in 101 large- and mid-sized Indian businesses. The fund started trading in February 2012.

INDA Weekly Chart.

INDA tracks the returns of the MSCI India Index. Portfolio weightings of major sectors are as follows: financials (26.30%), IT (17.31%), energy (12.09%), materials (9.72%) and consumer staples (8.85%). The top 10 holdings comprise close to half of net assets, which stand at $6.48 billion.

The highest share (9.83%) belongs to the largest private sector holding group in India, Reliance Industries (NS: RELI ), which has operations in retail, digital services, media, entertainment, oil and chemicals sectors. Next in line are the IT and consulting heavyweights Infosys (NYSE: INFY ) and Tata Consultancy Services (NS: TCS ); leading housing finance provider Housing Development Finance (NS: HDFC ); financial services group ICICI Bank (NYSE: IBN ); and consumer goods manufacturer and distributor Hindustan Unilver (NS: HLL ).

INDA is up almost 25% this year and 38% in the past 12 months. The fund hit a record high in recent days. P/E and P/B ratios of 32.03x and 4.01x point to an overstretched valuation level. Therefore, buy-and-hold investors could regard a decline of 3%-5% as a better entry point.

2. iShares MSCI India Small-Cap ETF

  • Current Price: $62.19
  • 52-Week Range: $36.03 - $64.05
  • Dividend Yield: 0.08%
  • Expense Ratio: 0.81% per year

The iShares MSCI India Small-Cap ETF (NYSE: SMIN ) invests in small-capitalization Indian equities. The fund started trading in February 2012.

SMIN Weekly Chart.

SMIN, which has 261 stocks, tracks the returns of the MSCI India Small Cap Index. With an 18.30% share, materials is the leading sub-sector in the ETF. It is followed by industrials (17.56%), financials (15.11%), consumer discretionary (11.53%), IT (11.26%) and health care (8.30%). The leading 10 names account for about 17% of net assets of $427.4 million.

Among the top names on the roster are the energy group Tata Power (NS: TTPW ); chemicals company SRF (NS: SRFL ); IT services stock Mphasis (NS: MBFL ); media conglomerate Zee Entertainment Enterprises (NS: ZEE ), IT and outsourcing name MindTree (NS: MINT ); and real estate developer Godrej Properties (NS: GODR ).

The ETF is up more than 48% in 2021 and 72.5% in the past year. SMIN saw an all-time high in mid-October. P/E and P/B ratios are 31.34x and 3.86x, respectively. Interested readers could regard a potential decline toward $60 as a better entry point.

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