If you want to invest in Indian stocks — like those that list on the Bombay Stock Exchange (BSE) or National Stock Exchange (NSE) — well, I can’t blame you. But you might want to bone up on your breathing exercises.
Investing in emerging markets has required the patience of a saint in recent years. A slowdown in China, the energy bust and a lack of risk appetite among investors have all conspired to push down the values of most emerging-market stocks, including the Bombay Stock Exchange.
While 2016 has been a good year for the BSE and for emerging markets in general, prices have essentially gone nowhere in five years. The theme of the past half decade has been “America or bust!”
Yet if you believe in the long-term India growth story, buying a basket of Indian stocks makes all the sense in the world.
Unlike China — which already has an aging population and an economy tied heavily to low-value manufacturing — India has a young, mostly English-speaking population and a growing services and information economy. It also has a reform-minded government pursuing growth policies … something that is largely absent in most of the developing world these days.
If you want to invest in Indian stocks, you essentially have three options:
#1: Invest Directly in the Bombay Stock Exchange (BSE) or National Stock Exchange (NSE)
This isn’t a particularly easy option for most Americans, as few American brokers have direct access and the laws here are not favorable to foreigners.
Up until recently, trading was limited to “non-resident Indians” meaning you had to be an Indian citizen living abroad or be “of Indian origin.” The market has since been opened to foreigners, but it’s still difficult for a regular investor.
To invest in India, you’d need to be a Qualified Foreign Investor (QFI). To be eligible here, your country has to be a member of the Financial Action Task Force (FATF) and a signer of the International Organization of Securities Commissions (IOSCO). The United States passes on both counts.
Here’s where it gets fun.
You also have to apply for a Permanent Account Number (PAN), which is the Indian equivalent of a Social Security Number and can take two to three weeks. You’ll then need to open an account with a bank serving as a Qualified Depository Participant and open a trading account with a stock broker with access to the BSE or NSE.
If all of that sounds daunting … well, that’s because it is. Getting direct access to the Bombay Stock Exchange and National Stock Exchange is a complicated mess.
#2: Buy Indian ADRs Trading in the United States
An easier option would be to content yourself with BSE and NSE stocks that also trade on the American exchanges as American Depository Receipts (ADRs).
Some popular names you might know that currently trade stateside are Dr.Reddy’s Laboratories Ltd (ADR) (NYSE:RDY), Infosys Ltd ADR (NASDAQ:INFY), Tata Motors Limited (ADR) (NYSE:TTM) and Wipro Limited (ADR) (NYSE:WIT). (A more exhaustive list can be found here.)
#3: Buy an India ETF
The number of Bombay Stock Exchange and National Stock Exchange stocks trading outside of India is somewhat limited and not particularly representative of the country as a whole. So for broader exposure, an Indian ETF would likely be your best bet.
On this front, you almost have too much of a good thing.
There are currently 11 India ETFs trading in the United States, some of which — like the iShares MSCI India ETF (BATS:INDA) — are broad, liquid and provide a decent sampling of India’s large caps. Others — like the EG Shares India Small Cap ETF (NYSEARCA:SCIN) or EG Shares India Infrastructure ETF (NYSEARCA:INXX) — offer more targeted exposure to specific sub-sectors of the Indian market.
Bottom Line
Here’s my recommendation: If you want long-term, buy-and-hold exposure to India, consider one of the standard large-cap ETFs like INDA. If you want to try your luck trading BSE or NSE stocks, you have your pick of specialized ETFs and a good number of individual companies to choose from.
Charles Sizemore is the principal of Sizemore Capital, a wealth management firm in Dallas, Texas.
