Investing in the fastest growing large economies in the world over the next two decades sounds like a sound investment idea. So why have investors begun to shun India in favor of other Asian emerging countries?

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

According to The Economist, real gross domestic product (GDP) growth is expected to average 5.2% a year from 2011 to 2030. The booming information technology industry and changes in the old school agriculture sector will be needed to keep the lofty goals.

India ETFs
The several exchange-traded funds (ETFs) that offer exposure to India have done well year-to-date. However, in the last few weeks they have been losing steam at a rapid pace. The iShares S&P India Nifty 50 ETF (Nasdaq:INDY) remains higher by roughly 14% in 2012, but is down over 11% from its February high. This is causing major concerns for investors that own India-related ETFs.

INDY is a basket of 51 stocks that is composed of the largest and most liquid stocks in the Indian equity market. The ETF tracks a rupee-denominated index, which would be beneficial if the Indian currency rises versus the United States dollar. The ETF is heavily weighted in the banks (19%), software (13%), cigarettes (8%) and refineries (8%). The 0.89% expense ratio is a little high for a large cap single country ETF. Overall, INDY would be for the investor that wants exposure to the large cap stocks based in India.

The WisdomTree India Earnings ETF (ARCA:EPI) is up around 17% year-to-date and tracks an index that weighs its holdings by their net income of the last fiscal year. The companies included must be profitable to be considered for the portfolio. The 271 stocks that make up the portfolio are concentrated in banks (20%), energy (18%), materials (12%) and software & services (12%). The expense ratio is 0.83% with a yield of about 0.78%.

SEE: How To Pick The Best ETF

Niche India ETFs
There is a trio of ETFs offered by the EGShares family of ETFs that concentrate on niche areas within the Indian market. The EGShares India Consumer ETF (ARCA:INCO) is composed of 30 stocks that are in the consumer sector of India. Specific sectors include personal goods, food producers and media. The ETF charges an expense ratio of 0.89% and the holdings have a median market capitalization of nearly $2.8 billion. Year-to-date, the ETF is up around 17%.

Up more than 19% in 2012 is the EGShares India Infrastructure ETF (ARCA:INXX). The ETF is designed to take advantage of the estimated $1 trillion expected to be spent on infrastructure in the country in the coming five years. The 30 stocks are mainly industrials (38%), utilities (25%) and telecom (12%). The expense ratio is 0.85%.

Investors seeking exposure to the small cap class could consider the EGShares India Small Cap ETF (ARCA:SCIN). The ETF is the top performer, with a gain of roughly 23% year-to-date. The 76 stocks are in the financial (25%), industrial (20%) and consumer goods (17%) as well as other sectors. The expense ratio is 0.85%.

SEE: Advantages And Disadvantages Of ETFs

The Bottom Line
The key to investing in India will be patience as the country goes through some difficult times in the near future. Long-term, the numbers suggest steady growth that is well above its peers. Investors should use the weakness in share prices to begin building long-term positions. If you are not able to weather the ups and downs of a single country ETF, India is not an option at this time.

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

At the time of writing, Matthew McCall did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Chart Advisor

    Now Could Be The Time To Buy IPOs

    There has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
  2. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  3. Economics

    Long-Term Investing Impact of the Paris Attacks

    We share some insights on how the recent terrorist attacks in Paris could impact the economy and markets going forward.
  4. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  5. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  6. Mutual Funds & ETFs

    Buying Vanguard Mutual Funds Vs. ETFs

    Learn about the differences between Vanguard's mutual fund and ETF products, and discover which may be more appropriate for investors.
  7. Mutual Funds & ETFs

    ETFs Vs. Mutual Funds: Choosing For Your Retirement

    Learn about the difference between using mutual funds versus ETFs for retirement, including which investment strategies and goals are best served by each.
  8. Mutual Funds & ETFs

    How to Reinvest Dividends from ETFs

    Learn about reinvesting ETF dividends, including the benefits and drawbacks of dividend reinvestment plans (DRIPs) and manual reinvestment.
  9. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  10. Mutual Funds & ETFs

    Best 3 Vanguard Funds that Track the Top 500 Companies

    Discover the three Vanguard funds tracking the S&P 500 Index, and learn about the characteristics and historical statistics of these funds.
  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. How do mutual funds work in India?

    Mutual funds in India work in much the same way as mutual funds in the United States. Like their American counterparts, Indian ... Read Full Answer >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>

You May Also Like

Trading Center