India ETFs on verge of breaking out after stealth moves

ETFs may aid investors seeking gains in the eighth-biggest stock market

Rob Isbitts

India arch on beach

ETFs that track India’s stock market, the world’s eighth largest, appear on the verge of finally breaking out, however, unlike the proverbial tree that falls in the forest, will investors hear it loud and clear, and be ready to profit from it?

At this time of global equity malaise, with the world’s attention focused on AI and the Nasdaq, India stocks may be hiding in plain sight.

This has been a year of “fakeout breakouts” in many of the globe’s stock markets, when a sector or industry appears to transition from trading in a narrow range to a bullish price trend.

That has confounded fundamental and technical analysts, as the market is big on laggards amid a narrow, arguably deceptive first half. The S&P 500 reached its highest closing level of the year last Friday and is now up more than 12% in 2023.

While China and perhaps Japan get more attention in the search for investment life outside of US domestic markets, India ETFs might be somewhat of an afterthought.

There are currently six India equity ETFs listed in Europe, which have seen $324m inflows so far this year, as at 13 June, according to data from ETFLogic, a relatively small amount given the size of the market.

Maybe that is about to change. India is home to 1.4 billion people, more than a sixth of the planet’s population, and its stock market is filled with profitable companies selling at a huge discount to the US market.

India may be on the way to replacing a significant portion of China's low-cost labour role, as China is considered to be an increasing geopolitical threat to the US and Europe. The country’s massive population is potentially being mobilised for commerce to a level not previously seen.

The current ETFs available all track the MSCI India which currently offers exposure to 114 large and mid-cap companies. The cheapest of these is the iShares MSCI India UCITS ETF (NDIA) which has a total expense ratio (TER) of 0.65% and $1.6bn assets under management (AUM), the most across the segment.

However, the cheapest exposure overall is the $242m Franklin FTSE India UCITS ETF which commands a fee of just 0.19% and tracks the FTSE India 30/18 Capped index.

After many years of US equity market prowess versus much of global markets, the eighth largest market, India, may be a geographic spot for ETF investors to consider.

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