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The Best Ways to Invest in India, a Hotspot for Growth

Emerging markets are a key investing theme for 2017, and the “BRIC” nations are the hotspots. While most investors who think of emerging markets probably think China, India is an equally attractive market—if not more so.

U.S. companies are lining up to expand in India, and it is easy to see why: India has everything a large company wants, when looking for growth.

India’s huge population of over 1 billion includes an expanding middle class that is enjoying rising standards of living.

The India economy is expected to be one of the fastest-growing in the world. According to the World Bank, India grew its gross domestic product by 7% in 2016, with growth expected to accelerate through the end of the decade.

The World Bank forecasts 7.6% GDP growth in India this year, followed by 7.8% GDP growth in 2018 and 2019.

An India ETF With the Right Mix

The best way to play India could be iShares India 50 (NASDAQ: INDY). The exchange-traded fund tracks the performance of the India ‘Nifty Fifty,’ which refers to the 50 largest companies in India. It is a large-gap, growth-oriented ETF with an annual expense ratio of approximately 0.94%.

The fund is diversified amongst sector allocation and holdings—no single stock represents more than 7% of the ETF.

The ETF’s top five holdings are:

  • Housing Development Corp: 7% of assets
  • ITC Ltd: 7% of assets
  • Reliance Industries: 6% of assets
  • Infosys Ltd (NYSE: INFY): 6% of assets
  • HDFC Bank 6% of assets

The iShares India 50 ETF has already risen 18% year-to-date, with plenty of potential for more gains.

To date, not many U.S. companies have been successful in expanding to India.  India is a challenging market; its has a decentralized population means  large numbers of people in rural areas.

In addition, competition is fierce, with many U.S. companies finding it difficult to gain pricing power. This has made it hard to compete with in-country companies.

For these reasons, to invest in India you may be better off buying shares in a diversified ETF that invests in a basket of companies based in India.

Invest in India via Apple

That said, the best U.S.-based stock to buy for India growth could be Apple, Inc. (NASDAQ: AAPL).

Apple has big plans for India.

It has virtually no market share in India—but that is about to change.

According to The Wall Street Journal, Apple will soon begin manufacturing iPhones in India.

Apple has so far been unable to push into India in a big way, partly because of its premium-priced phones. The smartphone market in India is highly fragmented, and is dominated by low-priced phones. India’s cost-conscious consumer base has so far not proven willing to pay high prices.

Apple’s average selling price reached $695 for the iPhone last quarter, which is exactly why the company unveiled the iPhone SE.

The iPhone SE is a lower-priced device, which costs several hundred dollars less than the regular iPhone models.

Apple has a minuscule presence in India, with market share of less than 3%, but Apple saw double-digit growth in Mac and iPad revenue in India last quarter, which bodes well for it to invest in India further.

Local assembly of the iPhone SE will help lower prices even more, a big step toward enhancing Apple’s competitive advantages. There is huge value for Apple in India beyond the iPhone, of course. Once the brand latches on with India’s huge consumer base, the benefits of Apple’s ecosystem will allow for continued growth across Apple’s other devices.

The bottom line: Investors should put India on their radars. The country is advancing rapidly, and is likely to be the highest-growth BRIC nation in 2017 and beyond. The iShares India 50 ETF and Apple could be the best ways to invest in India and gain exposure to this growth market.

Disclosure: The author is personally long AAPL.

 

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