The Ultimate Guide to Investing in India

Indian business man with Taj Mahal in background
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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 strong economy that could usurp China's position as the largest in the world.

Here are some more reasons that make India a great opportunity if you're looking to invest outside of the U.S.

Key Takeaways

  • India benefits from strong growth and a young, highly educated population that can sustain that growth.
  • Be aware of India's geopolitical risks before you invest.
  • You can buy shares in Indian companies through American Depository Receipts (ADRs), but it might trigger fewer taxes to invest in ETFs that focus on India.

An Overview of India's Economy

India is known for its information technology and business process outsourcing. It also ranks second worldwide in farm output and 12th in the world in terms of nominal factory output. These industries have pushed the country to be ranked third in the world based on purchasing power parity (PPP).

PPP is the rate at which a currency is converted to buy the same items in two different countries. It is used to compare the difference in purchasing power between two or more currencies.

The country also houses a workforce that is growing faster than any other in the world. The population of India is young. More than 85% of the people are below the age of 55. Of that number, more than 41% are between 25 and 54 years old.

Some of the country's 2019 economic statistics show its investing potential:

  • It has a gross domestic product (GDP) of $3 trillion and a growth rate of 6.8%.
  • Its GDP per capita is $2,152, and it has an inflation rate (CPI) of 6.62%.
  • Its unemployment rate stands at 6.4%.

The Benefits And Risks of Investing in India

The country has a longstanding parliamentary democracy and liberal economic policies that make it a safer place than many other rising markets. But the country's unstable geopolitical environment poses risks that you should think about before you invest.

The benefits of investing in India include:

  • Positive Demographics: The country has a youthful, educated, and growing workforce that should help support growth. This assumes that the country's educational system teaches how to advance its economy over time.
  • Strong Economic Growth: The country has a strong growth rate, particularly in the information technology and business process outsourcing sectors. These are still the largest sectors of the global economy as a whole.
  • Stable Government: It has kept a democracy since being released from British rule over 60 years ago. In 2014, Narendra Modi was elected prime minister. His government and policies have made good progress in recent years, although the country is still lagging in many ways.

The risks of investing in India include:

  • Geopolitical Instability: It is located in a somewhat shaky geopolitical region with many terrorist attacks on its soil. While these attacks haven't derailed its economy, they create short-term risks that you should consider.
  • Civil Rights: There is a possibility of social upheaval as women and people of the country fight for rights.

The Best Ways to Invest in India

There are many different ways to invest in India. You can choose from U.S.-listed exchange-traded funds (ETFs) to securities listed on the Bombay Stock Exchange (BSE). There is also the National Stock Exchange of India (NSE) that you can trade on. ETFs represent the easiest ways to access markets without worrying about the legal and tax issues of buying ADRs and foreign-traded securities.

Popular 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)

Some of the 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)