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Summary

  • Narendra Modi is on a mission to boost Indian economic growth.
  • Economists expect the Indian economy to rebound faster than all other major emerging economies.
  • Infrastructure spending to be USD 1 trillion between 2012 and 2017, and more to continue beyond that period.

It's been over a month since Narendra Modi was voted into office, winning by a landslide. During the election campaign, Mr. Modi promised development and good times ahead for India. On winning, Modi promised "to make the 21st century India's century."

Modi has promised to bring about wide-ranging economic reforms to jump-start the economy that has grown at a muted pace under the outgoing UPA2 coalition government. The BJP has accused the exiting UPA2 of stagnating economic growth. The International Monetary Fund (IMF) recently attributed India's declining economic growth to internal factors, such as a multitude of scams, delayed decision-making, and policy paralysis. The UPA2, being a coalition government, was unable to make the necessary economic reforms quickly to boost growth. Mr. Modi's government, after winning a clear majority, will not have the excuse of policy paralysis that often accompanies coalition governments.

Mr. Modi has hit the ground running, demanding his ministers to adhere to a 100-day agenda with the focus on governance and efficient delivery and implementation of programmes. Ministers have been kept on check, and Modi has made it known to his ministers that they will be held responsible for their actions (or inactions).

Modi's plan to revitalize economic growth and build a better India will require high levels of investment. Mr. Modi has been looking to Japan, Singapore and Thailand for investments. Also, China has offered to finance about 30% of India's planned infrastructure spending through 2017 ($300B of India's $1T infrastructure spending). Mr. Modi wants to emulate China's infrastructure development, wanting to transform India into a competitive manufacturing hub. The 5-year $1T infrastructure spending includes building of 3 airports, 2 ports, developing 6,000 miles of new roads, revamping the railways, and finally, the Indian Planning Commission estimates that India will need at least 180 additional airports over the next decade. Chetan Ahya, Morgan Stanley's Hong Kong-based chief Asia economist, believes that the Indian economy will rebound faster than other large emerging economies. Citigroup and Nomura Holdings Inc. both raised their forecasts for Indian economic growth. These developments make India one of the world's most attractive markets for companies in the infrastructure business.

Narendra Modi's victory has already led to Foreign Institutional Investors (FIIs) pouring in $3.35B into the Indian debt market in May. The S&P BSE Sensex is up about 27.34% since Narendra Modi was named the prime ministerial candidate, outperforming the SPY, which is up 15% over the same period. Nomura Holding's Sonal Varma (economist) believes that as "economic fundamentals change (due to investment)… they will unleash other positive indirect effects on the economy." This means that there is plenty of room for growth, especially as more foreign investment continues to pour into the country.

The Modi government plans to introduce new FDI limits, increasing FDI to 100% in Defence production, and open talks on increasing FDI limits in the Indian Railways and large infrastructure projects.

The best way to invest in the Indian economic turnaround would be to find individual companies that one thinks will benefit best from FDI. However, at this moment, the easiest and safest way to invest in India would be through ETFs targeted towards the Indian economy. The recent escalation of ISIS in Iraq has led to a pullback in Indian ETFs, presenting a decent entry point for a long-term investor.

The following is a list of Indian ETFs that will reap the rewards of FDI in the Indian economy:

1. INXX - EGShares India Infrastructure ETF

  • Issuer: EGShares
  • Expense Ratio: 0.85%
  • Description: Free-float market capitalization-weighted stock market index comprised of 30 leading companies that Indxx, LLC determines to be representative of India's Infrastructure industries, as defined by the Industry Classification Benchmark (ICB).
  • Major Market Sectors:

a) Industrials - 28.45%

b) Utilities - 22.25%

c) Basic Materials - 14.61%

d) Communication Services - 8.61%

2. INDA - iShares MSCI India Index ETF

  • Issuer: iShares
  • Expense Ratio: 0.65%
  • Description: The index measures the performance of Indian equity markets (tracks the MSCI India Index).
  • Major Market Sectors:

a) Financial Services - 22.78%

b) Technology - 19.24%

c) Energy - 12.26%

d) Consumer Defensive - 10.79%

3. INDY - iShares S&P India Nifty Index ETF

  • Issuer: iShares
  • Expense Ratio: 0.93%
  • Description: INDY measures the performance of 50 large cap Indian stocks (tracks the S&P CNX Nifty Index).
  • Major Market Sectors:

a) Financial Services: 28.08%

b) Technology: 14.55%

c) Energy: 11.47%

d) Consumer Defensive: 10.51%

4. PIN - PowerShares India Portfolio ETF

  • Issuer: Invesco PowerShares
  • Expense Ratio: 0.81%
  • Description: The index is designed to replicate the Indian equity markets as a whole, through a group of 50 Indian stocks selected from a universe of the largest companies listed on two major Indian exchanges. The India Index has 50 constituents, spread among the following sectors: Information Technology, Health Services, Financial Services, Heavy Industry, Consumer Products and Other.
  • Major Market Sectors:

a) Energy - 23.6%

b) Technology - 18.53%

c) Basic Materials - 14.43%

d) Financial Services - 10.28%

5. SCIF - Market Vectors India Small-Cap Index ETF

  • Issuer: Van Eck
  • Expense Ratio: 0.91%
  • Description: The SCIF provides exposure to publicly traded companies that are headquartered in India or that generate the majority of their revenues in India (tracks the Market Vectors India Small-Cap Index).
  • Major Market Sectors:

a) Consumer Cyclical - 23.05%

b) Industrials - 17.83%

c) Financial Services - 15.66%

d) Technology - 10.35%

6. EPI - WisdomTree India Earnings ETF

  • Issuers: WisdomTree
  • Expense Ratio: 0.83%
  • Description: EPI is designed to replicate the price and yield performance of the WisdomTree India Earnings Index.
  • Major Market Sectors:

a) Financials - 26.79%

b) Energy - 20.01%

c) Information Technology - 12.32%

d) Industrials - 10.79%

7. INDL - Direxion Daily India 3x Bull ETF

  • Issuers: Direxion
  • Expense Ratio: 0.95%
  • Description: INDL is designed to replicate the Indian equity markets as a whole, through a group of 50 Indian stocks selected from a universe of the largest companies listed on two major Indian exchanges. The India Index has 50 constituents, spread among the following sectors: Information Technology, Health Services, Financial Services, Heavy Industry, Consumer Products and Other (tracks the Indus India Index 300%).
  • Major Market Sectors:

a) Energy - 22.51%

b) Information Technology - 22.60%

c) Basic Materials - 12.57%

d) Financials - 10.22%

Narendra Modi's government is on a mission to revive economic growth and transform the entire infrastructural system of India. India has already raised FDI limits, and is looking for capital to bring about the required changes in the economy. Also, big changes are expected in the upcoming budget. Big businesses and institutional investors believe in Modi's vision and are pouring in money into the country (and will continue to do so). India is at a demographic advantage to China, as the population is expected to grow and will exceed that of China's by 2025. This bodes well for investors looking for reliable growth. Continued FDI and materialization of Modi's efforts will kick start economic growth and will reap rewards for investors in the long run. The time to act is now!

Source: India's Booming - A Compelling Case To Include India In Your Portfolio