The Indian stock market has delivered strong returns to investors in YTD 2017 with the MSCI India index up 31.5% until the end of October, and local benchmark indices S&P BSE Sensex and NSE Nifty 50 having touched record high levels.
Though financials have long dominated Indian stock markets, technology stocks have been making their presence felt of late.
There are 11 India-focused equity exchange-traded products available on US exchanges. Among these, one is a leveraged ETF (INDL), one is an exchange-traded note (INP), and two don’t invest in the tech sector (INCO) (INXX) due to their investment objective.
The remaining seven maintain exposures to the information technology sector (GICS classification) according to the graph below.
Including the internet boom
Some of the ETFs in the graph above provide exposure to blue-chip Indian tech companies such as Infosys (INFY) and Wipro (WIT). However, with the internet boom that India is undergoing due to new entrant Reliance Jio, it would be in investors’ interest to consider investing in the telecom services sector along with the tech sector.
When combined, the following three ETFs provide the highest exposure to the exciting telecom and IT sectors combined:
PowerShares India Portfolio (PIN): The fund tracks the Indus India Index which is comprised of 50 stocks. The information technology and telecom services sectors form a combined 18.7% of the fund’s portfolio.
Apart from INFY and WIT, the fund provides exposure to stocks of Tata Consultancy Services (532540.BO) and HCL Technologies (532281.BO) in the tech space; and Bharti Airtel (BHARTIARTL.NS) and Idea Cellular (IDEA.NS) in the telecom services space.
The fund has an expense ratio of 0.8% and has returned 33.8% in YTD 2017.
WisdomTree India Earnings Fund (EPI): The underlying benchmark of the fund is the WisdomTree India Earnings Index and is one of only three India-focused ETFs with over $1 billion in assets ($1.8 billion). The information technology and telecom services sectors form a combined 17.5% of the fund’s portfolio.
Its holdings from the tech sector include INFY and HCL Technologies along with smaller companies like Mindtree (MINDTREE.NS) and MphasiS (MPHASIS.NS). Meanwhile, its top two holdings from the four in the telecom services sector are Bharti Airtel and Bharti Infratel (INFRATEL.NS).
The fund has an expense ratio of 0.84% and has returned 34% in YTD 2017.
iShares MSCI India ETF (INDA): The fund is by far the largest US-listed ETF with assets of $5.3 billion. The information technology and telecom services sectors combined form a little over 16% of the fund’s assets.
It provides exposure to the four biggest names in India’s tech space – INFY, WIT, HCL Technologies, and Tata Consultancy Services. In telecom services, the fund is invested in Bharti Airtel and Idea Cellular. On the software side of telecom (as classified by the fund house), it has exposure to Tech Mahindra (TECHM.NS).
The fund tracks the MSCI India Total Return Index, is invested across 78 stocks, has an expense ratio of 0.71% and has returned 31.1% in YTD 2017.
The iShares India 50 ETF (INDY) is a distant fourth among these ETFs with a combined exposure to information technology and telecom services sector of about 13%.
INXX, VanEck Vectors India Small-Cap Index ETF (SCIF), and Columbia India Small Cap ETF (SCIN) are funds which have a tenth of their portfolio invested in the tech and telecom services sectors combined. However, while the entire 13% exposure of the INXX is towards telecom, the SCIF and SCIN, due to their investment objective, are not invested in blue-chip stocks from either of the sectors. KPIT Technologies (KPIT.NS) and NIIT Technologies (NIITTECH.NS) are among the chief holdings of SCIF and SCIN from the tech sector.
Though the SCIF has returned an impressive 52.7% in YTD 2017 and the SCIN has risen 51.9% in the same period, investors should be careful while investing in these and similar funds due to their focus on the relatively volatile small-cap investment universe.