The Ultimate Guide to Investing in India

Invest in the World's Second Most Populous Country

Indian business man
Adrian Pope / Photographer's Choice / Getty Images

China may be the largest emerging market in the world, but its neighbor to the southwest may be poised to overtake it in the future. India has a rapidly growing population and dynamic economy that could eventually usurp China to become the largest in the world.

Investing in India may seem foreign to many in the United States, but the country's positive demographics and rapidly growing economy make it a great opportunity for international investors.

An Overview of India's Economy

India's economy is best-known for its information technology and business process outsourcing industries, but the country also ranks second worldwide in farm output and 12th in the world in terms of nominal factory output. These industries have propelled the country's economy to become the third largest in the world based on purchasing power parity (PPP).

The country also houses one of the fastest growing workforces in the world. The U.S. Census Bureau estimates that it will become the world's largest by 2025, while half of its population is below the age of 25 and more than 65% are below the age of 35. The country also has the third largest higher education system in the world, after the U.S. and China, according to a report by the World Bank.

The country's 2016 economic statistics included:

  • Gross Domestic Product (PPP): $8.8 Trillion
  • GDP Real Growth Rate: 7.5%
  • GDP per Capita: $6,664
  • Unemployment Rate: 2-3%
  • Inflation Rate (CPI): 5.41%

The Benefits and Risks of Investing in India

India's longstanding parliamentary democracy and liberal economic policies make it a safer destination than many emerging markets. But, the country's unstable geopolitical environment and several instances of terrorism on its soil pose some risks that should be considered before investing in India.

The benefits of investing in India include:

  • Positive Demographics. India has a youthful, educated and growing workforce that should help support its economic growth, assuming that the country's educational system effectively teaches them how to contribute to the economy over time.
  • Strong Economic Growth. India has realized strong historical growth rates, particularly in the information technology and business process outsourcing sectors. These sectors continue to be among the largest sectors of the global economy as a whole.
  • Stable Government. India has maintained a strong parliamentary democracy since its political freedom from Britain's rule some 50 years ago. In 2014, Narendra Modi was elected as the country's prime minister and has made great strides in improving the economy.

The risks of investing in India include:

  • Geopolitical Instability. India is located in a somewhat unstable geopolitical region and has witnessed several terrorist attacks on its soil. While these attacks haven't derailed its economy, they create short-term risks that investors should consider.

The Best Ways to Invest in India

There are many different ways to invest in India, ranging from U.S.-listed exchange-traded funds (ETFs) to securities listed on its own Bombay Stock Exchange (BSE) and National Stock Exchange of India (NSE).

ETFs represent the easiest ways to gain exposure without worrying about the legal and tax implications of buying American Depository Receipts (ADRs) and foreign-traded securities.

Popular Indian ETFs include:

  • WisdomTree India Earnings Fund ETF (NYSE: EPI)
  • iPath MSCI India Index ETN (NYSE: INP)
  • PowerShares India Portfolio ETF (NYSE: PIN)
  • iShares S&P India Nifty 50 Index Fund (NASDAQ: INDY)
  • Market Vectors India Small Cap Index ETF (NYSE: SCIF)

India's most popular ADRs include:

  • Tata Motors Limited (NYSE: TTM)
  • ICICI Bank Limited (NYSE: IBN)
  • Dr Reddy's Laboratories Limited (NYSE: RDY)
  • Infosys Ltd. (NASDAQ: INFY)
  • Rediff.com India Limited (NASDAQ: REDF)

Key Takeaway Points

  • India's positive demographics and booming economy make it a great investment opportunity for international investors.
  • India faces fewer risks than many emerging markets, with its longstanding democracy and liberal economic policies, but geopolitical risks should be considered.
  • International investors looking to invest in India should take a look at the country's many U.S. traded ETFs and ADRs to avoid possible legal and tax issues.