India’s Financial Frontier – Spotlight on INDA ETF

As U.S. indices reach new all-time highs, investors are starting to look elsewhere for opportunities.

Chinese stocks have fallen out of favor with U.S. investors.

But India has become a focus with its economic growth and huge population.

Unsurprisingly, Indian ETFs were amongst the top non-U.S. equity ETF searches this month.

At the top of the list was iShares MSCI India ETF (INDA), according to our TrackStar data.

However, niche ETFs often come with higher fees with returns that can vary substantially.

So let’s take a look at the INDA and see if it’s the best ETF investment for the Indian market.

Key Facts About INDA

• Net assets: $11.2 billion
• 12-month trailing yield: N/A%
• Inception: February 2, 2012
• Expense ratio: 0.65%
• Number of holdings: 152

The INDA ETF, tracking the MSCI India Index, offers a window into India’s diverse economic landscape.

While many associate India with its booming IT sector, this ETF paints a more nuanced picture.

Surprisingly, financials claim the largest sector allocation, followed by information technology and energy.

This composition reflects India’s evolving economy, showcasing its growth beyond just tech services.

With coverage of about 85% of the Indian equity universe, INDA provides broad exposure to large and mid-sized companies.

Examining the top holdings reveals a mix of familiar names and perhaps some surprises.

Reliance Industries, a conglomerate spanning energy to telecoms, often tops the list.

You’ll find IT giants like Infosys alongside major banks such as HDFC and ICICI.

Source: iShares

While the ETF is fairly balanced across its top holdings, the portfolio is weighted quite heavily into financials.

Source: iShares

With 152 holdings, INDA is one of the most diverse Indian ETFs. The 0.65% expense ratio is higher than a typical ETF, but not outlandish for this niche strategy.

Performance

India’s one-year performance has been outstanding. It has been up 32% in the past year and beat the S&P 500.

Yet, as you go further back, its overall performance lags behind U.S. major indexes.

Source: iShares

Competition

The top non-China Asian equity ETFs searches include several other options worth looking at and a South Korean ETF.

• iShares MSCI South Korea ETF (EWY): Gain broad exposure to South Korean equities, capturing large- and mid-cap companies. Market-cap weighted, EWY offers a focused play on key sectors like technology, finance, and consumer goods within a leading Asian economy.
• iShares India 50 ETF (INDY): Access India’s top 50 companies by market cap in a single fund. INDY is market-cap-weighted, providing targeted exposure to the powerhouse sectors fueling India’s dynamic growth, including IT, financials, and energy.
• First Trust India NIFTY 50 Equal Weight ETF (NFTY): An equal-weighted take on the NIFTY 50, NFTY provides balanced exposure to India’s largest companies. This approach reduces single-stock risk, ideal for those seeking diversified access to the rising Indian market.
• WisdomTree India Earnings Fund (EPI): EPI emphasizes profitability, offering exposure to Indian companies based on earnings strength rather than market cap. Targeted at investors looking for earnings-driven growth in sectors like financials, energy, and IT in India’s expanding economy.

It’s fascinating to see that the EPI, which holds the most stocks and uses a proprietary investment strategy, has done the best over the past five years.

Oddly, the most basic ETF that invests in the Nifty 50, INDY, has the second worst returns.

Our Opinion 7/10 

While there is nothing wrong with the INDA ETF, we see the EPI as a better choice.

The EPI offers more diversification and better performance with a reasonable amount of assets under management.

While INDA has a lower expense ratio and better liquidity, EPI is that much worse in either category and certainly not enough to offset its better returns.