India is one of the major emerging market economies. The Indian stock market is well established and the roots of the Bombay Stock Exchange (BSE) go all the way back to the mid 1800s, making it the oldest in Asia. It is the 10th largest stock exchange in the world by market cap, and the No. 1 in the world based on number of listed companies – around 5,000. The other large Indian Exchange, the National Stock Exchange (NSE) is the 11th largest in the world by market cap.
And even though the Indian indexes are correlated with emerging market indexes, they are not significantly correlated with American indexes. India presents a good way to diversify your portfolio by investing in a major emerging market with well-established exchanges in a democratic government.
Until recently, there were not many options to invest in India. However, in the last few years, investors in the U.S. have gained several ways to invest in India: ETFs, CEFs, one ETN, regular old mutual funds, and individual ADRs. For this first article, I’ll focus on broad market index ETFs that focus on India, and ignore the specialized and leveraged ones. That list boils down to…
|EPI||WisdomTree India Earnings Fund|
|PIN||PowerShares India Portfolio|
|INDY||iShares S&P India Nifty 50 Index Fund|
|INDA||MSCI India Index Fund|
Let’s look at these in more detail.
How the indexes work
The Wisdom Tree index is an earnings-weighted index adjusted by availability of shares to foreign investors. It consists of 220 companies, all of which are profitable.
The Indus India index is a proprietary index with 50 components chosen from a universe of the 200 largest companies by market cap on the BSE and NSE.
The Nifty is a market cap-weighted index of Indian equities, consisting of 50 Indian large caps covering all market sectors. These 50 companies comprise two-thirds of the market cap of all stocks listed on the NSE.
The MSCI India Index consists of 73 components and covers 85% of “the indian equity universe”.
Essentially even though their numbers of components are different, all these indexes represent a similar collection of large-cap Indian stocks.