2 India ETFs to diversify your portfolio


25 October 2023 - 11:00

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Here are 2 ETFs that allow you to diversify your portfolio by taking a position on the Indian stock market. Let’s analyze the pros and cons of these products.

2 India ETFs to diversify your portfolio

In the world of investments, India emerges as an attractive destination due to its promising economic growth potential. ETFs, or Exchange-Traded Funds, represent a versatile means for those wishing to gain exposure to the Indian stock market.

In this analysis, we will highlight two of the best ETFs for investing in the dynamic Indian market. We will discover their characteristics, strategies, and perspectives to help you make informed decisions regarding your investments in India.

Are Indian ETFs worth it?

The Indian economy, since its liberalization in the early 1990s, has witnessed remarkable growth, consistently maintaining a growth rate of Gross Domestic Product (GDP) above 5%. However, in 2019, this rate dropped to 4%, and in 2020 it contracted sharply to 8% due to the devastating impacts of the Coronavirus pandemic.

Despite this unprecedented challenge, the economic outlook for India remains positive, with forecasts pointing to a recovery and a return to GDP growth above 6% in the coming years. In 2020, the Indian economy was ranked as the sixth largest in the world, testifying to its relevant position in the global economic arena.

Regarding the industrial landscape, it should be underlined that the retail sector constitutes the pre-eminent component of India’s GDP, contributing almost 25% of the entire national GDP. In parallel, agriculture retains its relevance, producing a wide range of products including rice, wheat, cotton, and tea. The mining industry plays a significant role in the Indian economy, with the country among the world’s leading producers of minerals such as iron (fifth producer), bauxite (fifth producer), and coal ( third producer). India’s growing reputation as an outsourcing destination has been aided by relatively low wage costs, and the country has developed a strong presence in the Information Technology (IT) sector, generating revenues that exceeded 191 billion dollars in 2020. This sector plays a role of considerable importance in the overall GDP of the country, highlighting an essential diversification in the Indian economy.

What are the best ETFs to buy in India?

Let’s now look at two of the best ETFs that allow investors to access this market efficiently. We will explore the XtrackersNifty 50 Swap UCITS ETF 1C and the Franklin FTSE India UCITS ETF, examining their characteristics, performance, and prospects.

1. Xtrackers Nifty 50 Swap UCITS ETF 1C

An attractive opportunity for investors seeking exposure to the Indian stock market, but it is important to carefully consider its characteristics and performance.

The ETF uses a synthetic replication of the performance of the underlying index through a swap, which means it does not physically hold all of the stocks in the Nifty 50 Index. This approach may involve a certain degree of risk, as it depends on the swap counterparty to obtain the desired return. However, it is important to note that the ETF is managed in such a way as to minimize counterparty risk.

The ETF’s total expense ratio (TER) is 0.85% per annum, which is relatively high compared to some other ETFs on the market. Investors should consider this carefully, as costs can erode returns over the long term.

The dividends generated by companies included in the index are accumulated and reinvested in the ETF, which can be beneficial for long-term investors. The ETF’s performance over the past few years has been generally solid, with a YTD return of +6.36% and a 3-year return of +54.39%. However, it is important to note that investments in emerging markets such as India can be volatile, as indicated by a 1-year volatility of 12.29%. Investors should be aware of this risk component.

Furthermore, it is important to note that the ETF has experienced a rather significant maximum drawdown since inception of -59.57%, which highlights the possibility of substantial losses in times of market turbulence.

2. Franklin FTSE India UCITS

The Franklin FTSE India UCITS ETF is a product that tracks the performance of the FTSE India 30/18 Capped index, an index that tracks Indian companies with both large and medium market capitalization. This ETF has some interesting features that make it attractive to investors interested in India.

One of the main peculiarities of this ETF is its selection of index components methodology. The FTSE India 30/18 Capped Index caps the market capitalization of the largest company in the index at 30%, while all other components are capped at 18%. This rule helps ensure adequate diversification within the index and reduces excessive concentration in a single stock.

The ETF has a total expense ratio (TER) of 0.19% per annum, making it very cost-efficient. Another interesting aspect of this ETF is its full physical replication structure, which means that it actually buys all the securities that make up the underlying index. This helps ensure that the ETF closely tracks the performance of the index. Additionally, dividends generated by shares in the ETF are accumulated and reinvested in the ETF itself, which can be beneficial to long-term investors.

Looking at performance, the ETF has demonstrated a very solid return over the years, with a YTD return of +11.08% and a 3-year performance of +61.43%. However, it is important to note that investments in emerging markets like India can be volatile, as indicated by a 1-year volatility of 11.41%. Investors should keep this risk factor in mind.

In summary, the Franklin FTSE India UCITS ETF offers investors an efficient way to gain exposure to the Indian stock market, with a stock selection methodology that promotes diversification and a competitive TER. However, the volatility associated with investing in emerging markets and the need for a long-term strategy to maximize the potential benefits of this product must be considered.

The information and considerations contained in this article should not be used as the sole and principal basis on which to make investment decisions. The reader maintains full freedom in his own investment choices and full responsibility in making them since he alone knows his risk appetite and his time horizon. The information contained in the article is provided for informational purposes only and its disclosure does not constitute and should not be considered an offer or solicitation for public savings.

Original article published on Money.it Italy 2023-10-21 16:50:00. Original title: 2 ETF India per diversificare il portafoglio


# ETFs
# India

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