After being drawn to the potential for meaningful growth offered by emerging markets in Russia, China and Brazil, investors are now looking at options in India that had so far been overshadowed by the China success story. India is the world’s most populous democracy and is home to the world’s 12th largest economy by nominal GDP with some analysts predicting that the country could surpass the U.S. in the next 30 years. Investors can benefit by adding some exposure to India in a portfolio as India continues to make the fiscal and social changes that will lead to greater sustained growth in the long run.
In addition to diversified emerging markets funds and BRIC ETFs, which generally make a significant allocation to Indian equities, there are a number of ETFs that invest exclusively in India’s stock market. Top of the line is definitely the popular WisdomTree India Earnings Fund (EPI), which tracks companies selected for the Wisdom Tree India Index that are incorporated and traded in India and are profitable and eligible to be purchased by foreign investors. They are weighted based on their earnings in the prior fiscal year. The fund's 125 holdings include various sectors and also include Infosys and Icici Bank. The fund has a low net expense ratio of 0.88% and as at 14 April 2010, the fund climbed 9.7% YTD. This is the most liquid of the three ETFs discussed.
Due to the weighting methodology of EPI, this fund gives a larger allocation to small and mid cap stocks than other India ETFs. Although large cap stocks receive the largest allocation in EPI, this fund does maintain exposure to firms of all sizes, as companies with a market capitalization of less than $10 billion account for more than 40% of total holdings. Unlike most equity ETFs, EPI doesn't track a market cap-weighted index, instead replicating the performance of a benchmark that weights holdings by earnings. Its main focus is on industrial materials (32%) and financials (23%).
Fund Inception Date 2/22/2008
EPI expense ratio: 0.88%
EPI: 23.46 +0.33 +1.43%
Top Holdings in WisdomTree India Earnings Fund As of 7/9/2010
1. Reliance Industries Ltd 10.41%
2. Infosys Technologies Ltd 8.54%
3. Oil & Natural Gas Corp Ltd 7.25%
4. State Bank of India Ltd 3.51%
5. Housing Development Finance Co 2.71%
6. Bharti Airtel Ltd 2.65%
7. ICICI Bank Ltd 2.51%
8. Tata Consultancy Services Ltd 2.36%
9. HDFC Bank Ltd 1.97%
10. Hindustan Unilever Ltd 1.82%
India ETF - Sector Breakdown As of 7/9/2010
1. Financials 22.33%
2. Energy 20.32%
3. Information Technology 14.39%
4. Materials 12.65%
5. Industrials 7.80%
6. Consumer Staples 4.84%
7. Telecommunication Services 4.80%
8. Consumer Discretionary 4.69%
9. Utilities 4.65%
10. Health Care 3.53%
India’s strength comes from the fact that its internal market is large, but is also better insulated than other emerging markets from exogenous shocks.
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