The Ultimate Guide to Investing in India
China may be the largest emerging market in the world, but its neighbor to the southwest might 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—and 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 2019 economic statistics included:
- Gross domestic product (GDP): $3 trillion
- GDP real growth rate: 6.8%
- GDP per capita: $2,041
- Unemployment rate: 6.1%
- Inflation rate (CPI): 3.18%
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 instances of terrorism pose risks that should be considered before investing.
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 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 some 50 years ago. In 2014, Narendra Modi was elected 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)
- Invesco 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)