Sovereign debt crisis in Europe and slow economic growth in the U.S. were some of the reasons that caused massive capital outflows from the Indian capital markets and imposed huge downward pressure on the Indian Rupee (INR) and slowdown in the economy.

Manufacturing and agricultural bottlenecks and lack of proactive measures by the government and the central bank (Reserve Bank of India) were the main reasons behind the economy reporting a mere 5.3% GDP growth for the second quarter of fiscal 2012.

Some of the positives for investing in India are low levels of correlations of Indian capital markets with the developed markets and attractive valuations.

Recent economic policies will make India an attractive destination for foreign investments once the global economic conditions improve.

These policies include 1) diesel subsidy cut, 2) foreign direct investment (FDI) guidelines relaxed, and 3) tax on foreign borrowings by Indian corporate reduced (see India ETFs: Getting Back On Track?).

Investors looking to tap this economy in basket form can invest in WisdomTree India

Earnings fund ( EPI - ETF report ) which is a #2 Zacks ETF Rank (Buy) fund. We expect it to outperform its peers over the next year. The product could be worth a closer look by investors seeking exposure to this economy (see Zacks Top Ranked India ETF in Focus: INDY).

About the Zacks ETF Rank

The Zacks ETF Rank provides a recommendation for the ETF in the context of our outlook for the underlying industry, sector, style box, or asset class. Our proprietary methodology also takes into account the risk preferences of investors. ETFs are ranked on a scale of 1 (Strong Buy) to 5 (Strong Sell) while they also receive one of three risk ratings, namely Low, Medium, or High (see more in the Zacks ETF Center).

The aim of our models is to select the best ETFs within each risk category. We assign each ETF one of five ranks within each risk bucket. Thus, the Zacks Rank reflects the expected return of an ETF relative to other products with a similar level of risk.

For investors seeking to apply this methodology to their portfolio in the Indian market, we have taken a closer look at the top ranked EPI below:

WisdomTree India Earnings Fund ( EPI - ETF report )

EPI is designed to provide a broad exposure to the Indian equity market with a focus on resembling the risk-return characteristics of total market equities. This ETF is appropriate for investors seeking a broad exposure to Indian equity markets with a focus on large cap equities with a long-term view. At 83 basis points, the expense ratio for the ETF stands pretty high. Like any other emerging market, investing in Indian equities requires a daunting appetite for risk.

The fund offers ample liquidity, trading in daily volumes of more than 2.8 million shares and has assets under management of $1.15 billion. The fund appears to be highly concentrated in the top 10 stocks where it has invested 40.4% of its assets (see Does Your Portfolio Need An India ETF?).

From a sector perspective, the ETF relies heavily on its top sectors. Financials, Energy, Information Technology, Materials and Industrials are the sectors with double-digit exposure. Healthcare, Consumer Staples and Telecommunication Services are sectors with least allocation.

From an individual holdings point of view, the ETF holds 199 securities with almost 40% allocation to its top 10 holdings. However, it is prudent to note that the top 10 holdings comprise of stocks from a variety of sectors. Energy majors – Reliance Industries and Oil and Natural Gas Corporation – together account for almost 14% allocation.

Like many other funds in the space, EPI has been performing well in the second half of this year and has 52-week high of $21.59 and 52-week low of 15.41 (read Time to Worry about Brazil ETFs?). The fund has returned about 5.08% over the last one-year period and 22.26% year-to-date (as of September 30, 2012).

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