The nation of India may be the best thing since sliced bread when it comes to emerging market Asia. While the Indian economy is nowhere near as large or expanding as fast as the Chinese Dragon, it may offer a better chance to sustain that growth over time than its neighbor. Recent bullish statements from Indian Prime Minister Manmohan Singh indicate that the government is confident of achieving economic growth of at least 7% for the fiscal year ending March 31, 2010. Add this to the growing inflow of nearly $17.5 billion in foreign direct investment in 2009 and you have a recipe for success. (For a review of the Indian market, read The Indian Stock Market 101.)

IN PICTURES: 20 Tools For Building Up Your Portfolio

A Tale of Exports and Democracy
India may provide better longer term returns compared to China; the discrepancy is a result of the countries' respective economic make ups. Exports from China constitute a huge 40% of its financial system; India's make up only 20%. India is also far less dependent on the cash-starved American consumer in order to purchase its goods. However, domestic consumption accounts for nearly 57% of its GDP compared to China's 37%. As such, India's growing young population also bodes well for its long-term growth.

India is the world's most heavily populated democracy, with nearly 1 billion citizens. The nation has been making strides to strengthen its ties with other allies and foster homegrown businesses. Recently, Prime Minster Singh met with President Obama to discuss future collaborations between Indian and American businesses. The prime minister also spoke about India's need for consistent electric power. The minister hoped to ratify a civil nuclear energy agreement that was created last year by India and the U.S.. This pact would make it easier for India and the United States to share nuclear technology and ultimately make atomic energy investment from U.S. businesses possible. As part of the agreement, India plans to invest $900 million into various solar technologies.

Adding India to a Portfolio
As long as emerging market nations continue to make the necessary changes, both fiscally and socially, that will lead to greater sustained growth, they belong in a portfolio. Adding a separate Indian component to a long-term strategy makes sense because India already has many of these required points. There are several mutual funds in the space, but based on expenses, exchange traded funds beat these hands down.

The largest and most liquid of these is the WisdomTree India Earnings ETF (NYSE:EPI). Companies selected for the index are weighted based on their earnings in the prior fiscal year. The fund's 125 holdings span various sectors and include tech outsourcing specialist Infosys (Nasdaq:INFY) and consumer bank ICICI (NYSE:IBN). The fund has a low net expense ratio of 0.88%.

Tracking a smaller number of companies, 51 in all, the PowerShares India ETF (NYSE:PIN) follows a broad swath of the Indian economy. Expenses are cheaper than the WisdomTree fund at 0.78%, but the EPI may make a better portfolio fit due to its heavy inclusion of small cap and mid cap companies.

iShares recently unveiled its first Indian based fund, the S&P India (Nasdaq:INDY), which claims to follow the "only stocks you'll ever need" concept. Volume is fairly low and most of the Nifty 51's holdings are found in the other two ETFs. Investors may want to skip this one and focus on the other funds in this sector.

Bottom Line
While China ought to be part of everyone's portfolio, India should not be forgotten. Its internally driven growth, young, educated workforce, and commitment to democracy should propel it into major-nation status. While there are publicly traded Indian companies such as Dr. Reddy's Laboratories (NYSE:RDY), investors may be better off getting into exchange traded funds tracking this market.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Starbucks: Profiting One Cup at a Time (SBUX)

    Starbucks is everywhere. But is it a worthwhile business? Ask the shareholders who've made it one of the world's most successful companies.
  2. Stock Analysis

    How Medtronic Makes Money (MDT)

    Here's the story of an American medical device firm that covers almost every segment in medicine and recently moved to Ireland to pay less in taxes.
  3. Investing News

    Latest Labor Numbers: Good News for the Market?

    Some economic numbers are indicating that the labor market is outperforming the stock market. Should investors be bullish?
  4. Investing News

    Stocks with Big Dividend Yields: 'It's a Trap!'

    Should you seek high yielding-dividend stocks in the current investment environment?
  5. Investing News

    Should You Be Betting with Buffett Right Now?

    Following Warren Buffett's stock picks has historically been a good strategy. Is considering his biggest holdings in 2016 a good idea?
  6. Products and Investments

    Cash vs. Stocks: How to Decide Which is Best

    Is it better to keep your money in cash or is a down market a good time to buy stocks at a lower cost?
  7. Investing News

    Who Does Cheap Oil Benefit? See This Stock (DG)

    Cheap oil won't benefit most companies, but this retailer might buck that trend.
  8. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  9. Stock Analysis

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  10. Investing News

    Today's Sell-off: Are We in a Margin Liquidation?

    If we're in market liquidation, is it good news or bad news? That party depends on your timeframe.
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  3. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  4. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  5. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
  6. Can mutual fund expense ratios be negative?

    Mutual fund expense ratios cannot be negative. An expense ratio is the sum total of all fees charged by an asset management ... Read Full Answer >>
Trading Center