As emerging market economies continue to draw attention and appeal and are likely to remain at the forefront of global economic growth in the future, India and the exchange traded funds (ETFs) that track the Asian nation have long-term appeal and for good reason.
The International Monetary Fund (IMF) expects the Indian economy to grow by 8.5% this year and to continue its expansion in the coming years. One reason India is expected to continue to witness healthy economic growth is its demographics. To put it bluntly, India is blessed with a young and capable workforce that is relatively well-educated and skilled in the English language. Furthermore, the Economist states that India’s dependency ratio, which is the proportion of children and old people to working age adults, is one of the best in the world and will remain so for a generation further enabling the country to surpass the growth of its rival emerging markets over the next quarter century.
A second reason India is likely to see healthy economic growth is due to the strength of its private companies. India is hardly dependent on state patronage, the fuel behind China’s growth, and is primarily fueled by entrepreneurs and business investment. Furthermore, business confidence appears to be rising in India and IPOs and debt origination are starting to reappear bolstering the nation’s capital markets.
Lastly, India’s government has started to address the major issues that could potentially hinder economic growth. The nation’s overall literacy rate is increasing due to a surge in cheap private schools for the poor and the government is focusing on improving mass transport, power generation, water systems and pollution control.
At the end of the day, India has exceptional potential and could outpace China and other emerging markets in the long-term future. Some ETFs to play India include:
- the iPath MSCI India Index ETN (INP), which is structured as a senior, subordinated debt instrument.
- the WisdomTree India Earnings Fund (EPI), which is designed to measure the performance of companies incorporated and traded in India that are profitable. The ETF holds companies such as Reliance Industries and Infosys Technologies (INFY).
- the PowerShares India Portfolio (PIN), which boasts Oil & Natural Gas Corporation and Hindustan Unilever in its top holdings.
- the Market Vectors India Small-Cap Index ETF (SCIF), allowing investors access to smaller companies in India, which tend to have more localized businesses and earnings growth that are more likely to reap the benefits of increasing purchasing power of the Indian consumer.
Although an opportunity seems to exist in these ETFs, it is equally important to consider the risks that are invloved. To help mitigate the downside effects of these risks the use of an exit strategy is important. Such a strategy can be found at www.SmartStops.net.
Disclosure: No Positions