India ETF investing has been quite a profitable endeavor in the last year or so. In fact, major India investments have more than doubled the 15% returns for the S&P 500 in the past 12 months.
Since this time last year, the iShares MSCI India ETF (BATS:INDA) is up 34% in the last 12 months, the WisdomTree India Earnings Fund (ETF) (NYSEARCA:EPI) is up 40% and the iShares S&P India Nifty 50 Index Fund (NASDAQ:INDY) is up 41%.
But while the gains for these India ETF investments are nice, the million-dollar question going forward is whether global investors should continue to prioritize India over other emerging markets.
I say the answer is “yes.” Here’s why:
India ETF Gains Should Stick
There are some fears that India ETF gains could evaporate in 2015 because it’s hard to trust that India’s growth of late will last.
For starters, there are fears a new calculation method is inflating India’s growth rate; specifically, the nation’s statistics department boasted a 7.5% rate of expansion for the economy under this new methodology, even while Reuters reports “stalled projects and stretched capacity in the power, infrastructure and housing sectors.”
But keep in mind that India is not China, which is suffering a slowdown. India hasn’t seen its GDP growth top 6.6% since 2011 — so this is clearly acceleration, even if the degree is unclear.
Furthermore, the biggest problem for India ETF investors in past years had been a red-hot inflation rate. But India inflation has fallen from a peak rate of 11.6% in November 2013 to about 5.4% in January 2015, showing that this problem might be under wraps. That’s thanks in part to moves by the Reserve Bank of India in the past year as well as soft energy prices.
Remember, All Investing Carries Risk
There are risks, of course. The business-friendly government of prime minister Narendra Modi has garnered big optimism, but with less than a year under his belt, he can hardly be declared an economic hero just yet.
Still, if push comes to shove, I’ll take stocks in India over stocks in China 10 times out of 10 right now.
And besides, you can’t continue to rely solely on U.S. stocks forever. It’s undeniable that the leadership in global equities has been with the United States, but geographic diversification is as crucial as spreading your portfolio across sectors and asset classes.
I think investors should look to India ETFs that include EPI, INDY and INDA in the new year. You also could consider smaller funds like the PowerShares India Portfolio (ETF) (NYSEARCA:PIN), or the Market Vectors India Small Cap Index ETF (NYSEARCA:SCIF) if you are really aggressive.
Do your own research, of course. But after you do, I’m confident you will agree with the opportunity in India ETF investing.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
