2 India ETFs to diversify your portfolio

In the world of investment, India emerges as an attractive destination due to its promising economic growth potentials.
ETFs, or Exchange-Traded Funds, are a versatile means for those looking to gain exposure to the Indian stock market.
In this analysis, we will highlight two of the best ETFs for investing in the dynamic Indian market.
We will discover their characteristics, strategies and perspectives to help you make informed decisions regarding your investments in India.
Economic situation in India: prospects and sectoral diversification The Indian economy, since its liberalization in the early 1990s, has witnessed remarkable growth, constantly maintaining a growth rate of Gross Domestic Product (GDP) above 5%.
However, in 2019, this rate dropped to 4%, and in 2020 it contracted sharply to 8% due to devastating impacts resulting from the coronavirus pandemic.
Despite this unprecedented challenge, the economic outlook for India remains positive, with forecasts pointing to a recovery and a return to GDP growth above 6% in the coming years.
In 2020, the Indian economy was ranked as the sixth largest in the world, testifying to its relevant position in the global economic arena.
Regarding the industrial landscape, it should be underlined that the retail sector constitutes the prominent component of India's GDP, contributing almost 25% of the entire national GDP.
In parallel, agriculture retains its relevance, producing a wide range of products including rice, wheat, cotton and tea.
The mining industry plays a significant role in the Indian economy, with the country among the world's leading producers of minerals such as iron ore (fifth producer), bauxite (fifth producer) and coal (third producer).
India's growing reputation as an outsourcing destination has been aided by relatively low wage costs, and the country has developed a strong presence in the Information Technology (IT) sector, generating revenue that topped $191 billion in 2020.
This sector plays a role of considerable importance in the overall GDP of the country, highlighting an essential diversification in the Indian economy.
The best ETFs for investing in the Indian stock market Let's now look at two of the best ETFs that allow investors to access this market efficiently.
We will explore the XtrackersNifty 50 Swap UCITS ETF 1C and the Franklin FTSE India UCITS ETF, examining their characteristics, performance and prospects.
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Xtrackers Nifty 50 Swap UCITS ETF 1C The of the Indian economy.
This ETF represents an interesting opportunity for investors seeking exposure to the Indian stock market, but it is important to carefully consider its characteristics and performance.
The ETF uses a synthetic replication of the performance of the underlying index through a swap, which means it does not physically hold all the securities in the Nifty 50 index.
This approach may involve a certain degree of risk, as it depends on the counterparty of the swap to obtain the desired return.
However, it is important to note that the ETF is managed in such a way as to minimize counterparty risk.
The ETF's total expense ratio (TER) is 0.85% per year, which is relatively high compared to some other ETFs on the market.
Investors should consider this carefully, as costs can erode returns over the long term.
Dividends generated by companies included in the index are accumulated and reinvested in the ETF, which can be beneficial for long-term investors.
The ETF's performance over the past few years has been generally solid, with a YTD return of +6.36% and a 3-year return of +54.39%.
However, it is important to note that investments in emerging markets such as India can be volatile, as indicated by a 1-year volatility of 12.29%.
Investors should be aware of this risk component.
Furthermore, it is important to note that the ETF has experienced a rather significant maximum drawdown since inception of -59.57%, which highlights the possibility of substantial losses in times of market turbulence.
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The Franklin FTSE India UCITS ETF The Franklin FTSE India UCITS ETF is a product that follows the performance of the FTSE India 30/18 Capped index, an index that replicates Indian companies with a capitalization of both large and medium market.
This ETF has some interesting features that make it attractive to investors interested in India.
One of the main peculiarities of this ETF is its methodology for selecting the index components.
The FTSE India 30/18 Capped Index caps the market capitalization of the largest company in the index at 30%, while all other components are capped at 18%.
This rule helps ensure adequate diversification within the index and reduce excessive concentration in a single stock.
The ETF has a total expense ratio (TER) of 0.19% per year, making it quite cost efficient.
Another interesting aspect of this ETF is its full physical replication structure, meaning that it actually buys all the securities that make up the underlying index.
This helps ensure that the ETF closely tracks the performance of the index.
Additionally, dividends generated by shares in the ETF are accumulated and reinvested in the ETF itself, which can be beneficial to long-term investors.
Looking at performance, the ETF has demonstrated a very solid return over the years, with a YTD return of +11.08% and a 3-year performance of +61.43%.
However, it is important to note that investments in emerging markets like India can be volatile, as indicated by a 1-year volatility of 11.41%.
Investors should keep this risk factor in mind.
In summary, the Franklin FTSE India UCITS ETF offers investors an efficient way to gain exposure to the Indian stock market, with a stock selection methodology that promotes diversification and a competitive TER.
However, the volatility associated with investing in emerging markets and the need for a long-term strategy to maximize the potential benefits of this product must be considered.
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The reader retains full freedom in his own investment choices and full responsibility in making them, since he alone knows his risk appetite and his time horizon.
The information contained in the article is provided for informational purposes only and its disclosure does not constitute and should not be considered an offer or solicitation for public savings.