WHY INDIA IS POISED FOR POTENTIAL GROWTH?

Doug Fabian


India, one of the most populous nations on
Earth, is an interesting country for investors
because it holds the promise of significant
growth potential. Its unique characteristics
include a population that is young compared
to developed nations, the presence of some
world class universities and the availability of
many employable, English-speaking people.
But the country has not yet managed to
overcome regulatory obstacles and other
problems that have held it back from achieving
higher growth rates in the past. However, the
recent election of a new, pro-business prime
minister makes now a good time to consider
investing in funds such as the Market Vectors
India Small-Cap ETF (SCIF) .
The election of conservative Bharatiya Janata
Party (BJP) leader Narendra Modi as prime
minister sets the stage for this BRIC (Brazil,
Russia, India and China) country to grow
rapidly. In fact, some observers anticipate this
economic expansion will occur relatively
quickly, as it has in some other Asian
countries that modernized and adopted
business-friendly policies.
SCIF is an exchange-traded fund (ETF) that
seeks to replicate the results, before fees and
expenses, of an index of small-capitalization
companies that either are headquartered in
India or generate most of their revenues in the
country. If you are risk averse, keep in mind
that this country-specific ETF is not diversified.
So far this year, SCIF has gained 53%, with a
significant climb occurring after Prime
Minister Modi’s election. Recently, subscribers
to my Successful ETF Investing service made
more than 25% in profits on a short-term
trade with this ETF. In 2013, the fund’s gain of
185.07% far outperformed the U.S. market.
SCIF’s top 10 holdings represent 27.75% of its
total assets. These holdings include Unitech
Ltd, 4.32%; Suzlon Energy Ltd, 3.24%; Jain
Irrigation Systems Ltd, 2.77%; IFCI Ltd, 2.69%;
and Vakrangee Software Ltd, 2.67%. The top
sectors held by SCIF are consumer cyclical,
21.77%; industrials, 17.28%; financial services,
15.89%; and technology, 9.84%.
In addition, not only is SCIF a way to invest in
India, which seems poised to prosper, but this
particular ETF also focuses on small-cap
stocks. As we have previously written, small
caps have traditionally outperformed the
broader stock market , at least here in the
United States. Applying this lens to the Indian
situation can make investing in Market
Vectors India Small-Cap ETF (SCIF)
potentially even more appealing.
If you want my advice about buying and
selling specific ETFs, including appropriate
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I am happy to answer any of your questions
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answered in a future ETF Talk.
In case you missed it, I encourage you to read
my article from last week about how Russia’s
rebound could be good for investors .