If investors are interested in the Indian economy, then they should pay attention to the Betashares India Quality ETF (ASX: IIND). It's an ASX exchange-traded fund (ETF) that gives exposure to the Indian share market.
India is now the most populated country in the world with more than 1.4 billion people.
Of course, this means the country also has a very large economy and there could be plenty more growth to come if the nation can invest in its infrastructure and grow its middle class.
Why is the Indian economy an appealing destination?
As people have more disposable income, they spend it on different areas such as entertainment, travel, electronics, financial services, and luxury brands.
In a world where the global economy is slowing, Deloitte thinks the Indian economy will grow by between 6% to 6.5% in FY23, with growth of around 6.5% in the medium term. That's a strong backdrop for potential earnings growth for Indian businesses.
Australia's Department of Foreign Affairs and Trade (DFAT) suggests the Indian economy will grow by between 6% to 8% annually over the next two decades, "underpinned by productivity improvements". That sounds very promising for the ASX-listed ETF, Betashares India Quality ETF.
Indeed, India could become a major manufacturing hub in the coming years as some companies look to diversify their supply chains. For example, Apple's biggest supplier Foxconn will start manufacturing iPhones in the southern Indian state of Karnataka by April 2024, according to reporting by the BBC.
DFAT also suggests that over the next 20 years, a growing India "will need many of Australia's goods and services, including agriculture, education and skills training, and healthcare".
It also notes:
In 2021, India was Australia's sixth-largest two-way goods and services trading partner and fourth-largest goods and services export market.
Two-way goods and services trade with India was $34.3 billion in 2021. Australia's stock of investment in India was $19.9 billion at 2021 and India's total investment in Australia was $27.8 billion.
Education is Australia's largest service export to India, valued at $4.2 billion in 2021. As of October 2022, almost 57,000 Indian visa holders were studying in Australia.
What's so good about the Betashares India Quality ETF?
The Betashares India Quality ETF is an ASX ETF that tracks the 30 largest 'quality' Indian companies based on a combined ranking of three factors – high profitability, low leverage, and high earnings stability.
I like businesses and ETFs that are based on quality metrics.
Readers may not have heard of many of the top 10 businesses in the portfolio, but these are the current largest holdings: Tata Consultancy Services, Infosys, Hindustan Unilever, Kotak Mahindra Bank, Icici Bank, Housing Development Finance, Bharti Airtel, Reliance Industries, Dr Reddy's Laboratories, and Axis Bank.
There are four sectors that have an allocation of more than 10%: financials, IT, materials, and consumer staples.
The index that this fund tracks has done well, with an average return per annum of 14% over the past decade. That's stronger than the returns of the S&P/ASX 200 Index (ASX: XJO).
However, it doesn't pay much of a dividend and the annual costs are 0.8%. This isn't as good as other ETFs, but I think there could be improvements as time goes on as the businesses and the ETF get bigger.
While I wouldn't expect this to be the best performer, I think the Indian economic growth is very promising for the IIND ETF's underlying earnings and this can drive shareholder returns for years to come.
