Tuul & Bruno Morandi/DigitalVision via Getty Images
India, to put it mildly, is hot. I don’t mean in terms of weather. I mean in terms of India’s economy. India has been the standout emerging market from the 2020 COVID-19 lows, and that momentum looks likely to continue as the country benefits from trade being shifted away from China, and given favorable demographics.
If you’re bullish on the country, you may want to consider the iShares India 50 ETF (NASDAQ:INDY), which is a passively managed fund that provides access to the 50 largest Indian stocks. With the Nifty 50 index as its benchmark, INDY provides an easy way to express a view of India through its most valued companies.
A Look At The Holdings
As is typically the case with single-country ETFs, the fund has some decently high concentration in the top 10, with the largest position making up a little over 11% of the fund.
iShares.com
What do some of these companies do? HDFC Bank Ltd is one of India’s largest private sector banks. Reliance Industries Ltd. is a conglomerate with significant interests in energy and a handful of other sectors (telecommunications, retail, and digital services) that is driving Indian economic transformation. ICICI Bank Ltd. is another large private-sector bank. Infosys Ltd. is one of the world’s largest IT services companies. Larsen & Toubro Ltd. is a multinational conglomerate that specializes in engineering, construction, technology, and financial services.
Sector Composition and Weightings
When you think about India, you probably think about the economy being driven by tech companies. In reality, the majority of the fund is in the Financials sector at over a third of the fund, with Tech ranked second at 13%
iShares.com
It’s not unusual to see Financials ranked so highly in terms of overall weighting, as most single-country ETFs have similar positioning in their home countries. As Financials go, as the driver of lending, so too does the economy and health of many other sectors of the stock market. It’s worth noting that Energy makes up 12.58% of the fund – something I’m a fan of, given my own bullish views longer-term there.
Peer Comparison
There are a few funds out there that compete with INDY. One that’s worth mentioning is the iShares MSCI India ETF (INDA) which tracks the MSCI India Index. INDA gives investors broader exposure to the Indian equity market, with 146 holdings overall and less concentration as a result in the top holdings. When we look at the price ratio of INDY to INDA, we find that INDY has actually underperformed over the last several years largely. More diversification through INDA arguably has caused stronger outperformance overall.
StockCharts.com
Pros and Cons
On the positive side, INDY offers broad-based access to the stocks of India’s largest and most liquid companies at a 0.89% fee. It’s large, liquid, well established, and basically allows for a nice mix of India’s most important companies to be included in your portfolio. The sector mix, while perhaps a bit too heavily tilted to Financials, is strong overall, and the growth prospects for India overall mean there’s a lot of room for price appreciation/
The downside? India’s economic fortunes fluctuate with global macroeconomic conditions, geopolitical pressures, and domestic policy decisions that can lead to market volatility and periodic irrational exuberance. The fund also has already done extremely well and could be susceptible to a pullback. Also keep in mind that the fund is not currency hedged, which means total return will be impacted by the Rupee’s movement as well.
Conclusion
It’s hard not to like India overall here, and the iShares India 50 ETF is an excellent play on the growing economic strength of the country. I might personally more choose INDA given the larger number of holdings and diversification as a result, but both funds look good for what they do as a single-country bet. If bullish on the country, this is an easy way to express your view at a time when US markets look extended, and money could flow to overseas markets consistently (finally).
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