🥻A Spotlight on India's High Growth Potential

This Tuesday, we're shining our ETF UNO spotlight on the iShares MSCI India ETF (INDA), an ETF that offers investors a unique opportunity to tap into the Indian market. As one of the world's largest and fastest-growing economies, India presents a dynamic investment landscape. With India's burgeoning market, rich cultural heritage, and rapid technological advancements, INDA is not just an investment in a country's stock market, but a stake in its growth story.

What is INDA?

The iShares MSCI India ETF, serves as a gateway for investors to delve into the vibrant and dynamic Indian market. Launched over a decade ago in February 2012 by BlackRock(iShares), INDA is designed to track the MSCI India Index, an equity market benchmark that encompasses more than 100 of the top publicly traded stocks across large, mid and small-cap segments.

The ETF encapsulates a broad range of sectors, mirroring the diverse and rapidly evolving Indian economy. With top holdings in major sectors such as financials, information technology, consumer staples and communication services, INDA provides a comprehensive exposure to India's leading companies.

As the dominant India equity ETF available to US investors, INDA not only reflects the economic shifts and trends of one of the world's fastest-growing economies but also offers investors a chance to partake in the growth story of a nation that is increasingly influential on the global stage. Through INDA, investors gain access to the world’s largest democracy amid ascending economic prosperity and rising private consumption.

Investing in the Future of the Most Populated Country 🚀

Currently the country with most population in the world, India finds itself at an economic inflection point that makes the case for allocating investor capital ever more compelling.

• 📈Strong Historic GDP Growth: India has consistently demonstrated robust GDP growth, outpacing many other global economies. The country has transitioned from an agriculture-based economy to one that is increasingly driven by services and manufacturing, leading to sustained growth over the years.

• 🧑‍🤝‍🧑Supportive Demographics: India's demographic profile is one of its strongest assets. With over 50% of its population under the age of 25, the country boasts a growing workforce that is both tech-savvy and enterprising.

• 🏗️Government Reforms and Infrastructure Spending: Structural reforms initiated under the business-friendly Modi administration have also improved operating conditions for both local and multinational firms. Steps like implementing a national goods and services tax, easing restrictions on foreign direct investment, and investing billions in domestic infrastructure have helped boost the country's capital stock and productivity.

• 🏭Benefit from Manufacturing Shift Away from China: As global supply chains reorient, partly due to geopolitical shifts and the pursuit of diversification, India is increasingly seen as a viable alternative to China for manufacturing. India is well-positioned to attract manufacturers looking to diversify their production bases. Positioned at the confluence of these economic tailwinds, patient investors in Indian equities stand likely to reap the rewards.

In summary, investing in India now offers a blend of short-term gains due to current market dynamics and long-term benefits stemming from the country's fundamental growth drivers. This makes India an attractive destination for investors looking to capitalize on emerging market potential.

Top Holdings of INDA📃

As of December 2023, the top 10 holdings of INDA are:

1. Reliance Industries Ltd🛢️: Led by Mukesh Ambani, it is the largest private sector company in India focused on oil, petrochemicals, telecom, and retail with ambitious plans to pivot towards clean energy and 5G technology.

2. ICICI Bank Ltd🏦: A leading Indian private sector bank providing a wide range of financial services including retail banking, business loans, and investment solutions.

3. Infosys💻: Major global provider of consulting, technology, outsourcing, and next-gen digital services headquartered in Bangalore.

4. HDFC Bank Ltd💳: India's largest private sector bank with expansive reach providing retail loans, credit cards, and digital payment solutions.

5. Tata Consultancy Services Ltd 🖥️: Largest IT consulting firm in Asia offering a comprehensive range of technology services and consulting for global businesses.

6. Axis Bank Ltd💰: Third largest Indian private sector bank offering a comprehensive suite of financial products and services across the country.

7. Larsen and Toubro Ltd 🏗️: Indian multinational conglomerate engaged in technology, engineering, construction, and manufacturing, playing a pivotal role in India’s infrastructure development.

8. Bharti Airtel Ltd📱: Leading global telecommunications company, offering a wide range of telecom and digital services in 18 countries across South Asia and Africa.

9. Hindustan Unilever Ltd🧼: Major fast moving consumer goods powerhouse supplying many of India’s everyday household cleaning, food, and personal care essentials.

10. Kotak Mahindra Bank Ltd👥: a prominent Indian banking and financial services company, known for its innovative and customer-centric approach.

INDA at a glance

Asset Class: Equity

Underlying Index: MSCI India Index

Geographical Focus: India

Sector Focus: All major sectors

Expense Ratio: 0.64% (as of last data point)

Dividend Yield: 0.17% (as of last data point)

Distribution Frequency: Semi-Annual

Historical Performance

Since its inception in 2012, the iShares MSCI India ETF (INDA) has provided investors with a practical and efficient mechanism to tap into the Indian equity market. Despite occasional volatilities, which are characteristic of emerging markets, INDA has exhibited a general uptrend, reflecting India's expanding economy, increasing foreign direct investment, and growing financial market sophistication. Its performance is a testament to the burgeoning potential of the Indian market, making INDA a significant vehicle for investors looking to participate in India's economic story.

ETF Radar View

The radar chart below shows the general characteristics of the ETF:

Top 3 Reasons to Invest in INDA

1. Access to a Major Emerging Market: INDA provides exposure to a key emerging economy. India has averaged 6% GDP growth over the past decade and still has a long runway for expansion ahead as infrastructure improves and hundreds of millions see increased household wealth. As India's global economic footprint grows, INDA may stand to benefit from the country's increasing influence.

2. Growth Potential in Diverse Sectors: INDA covers a range of sectors poised for growth. The strong performance of sectors like IT and financial services has bolstered the ETF's growth.

3. Demographic Dividend: As the country with most population, India's young and growing workforce is a catalyst for economic growth and innovation. This will contribute to a positive multiplier effect on India’s booming tech and professional services sectors in particular.

Top 3 Reasons Not to Invest in INDA

1. Geopolitical Sensitivity: Regional tensions and internal politics can impact market stability. As a concentrated emerging market play, INDA can experience higher volatility than global equity funds during periods of market stress. Risk assets across the board tend to sell off in turbulent times.

2. Regulatory Environment: Changes in government policies can affect key sectors represented in INDA. While the current Indian administration has implemented business friendly policies, leadership change introduces some uncertainty over future policy direction.

3. Currency Risks: The Rupee can see periods of sharp declines versus the US Dollar, denting returns for foreign investors. Policy and trade deficits occasionally pressure the currency lower. The fluctuation can affect returns for U.S. investors.

Riding the Elephant 🐘 with INDA

INDA is more than just an emerging market ETF: it's a gateway to one of the most dynamic economies in the world. With its mix of technological innovation, a burgeoning consumer market, and diverse sectors, INDA offers investors a chance to be part of India's growth story. While higher volatility and uniquely Indian risks exist, the ETF can play a valuable role in a globally diversified portfolio as both a high growth and emerging market play.

ETF UNO aims to continue providing our loyal readers with timely insights into compelling investment opportunities across the expansive ETF universe. India and INDA represent the type of targeted exposure our research helps identify. We hope this overview has presented a balanced take on the pros and cons of investing in Indian equities.

As always, please ask any questions or ideas for future newsletter topics. We thank you for your readership and engagement! Here's to growing our knowledge as informed ETF investors together in 2023.

DISCLAIMER: The information in this article is for educational purposes and should not be taken as investment advice. Investors should conduct their own research or consult a financial advisor before making investment decisions.