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3 Sector ETFs to Play 7%+ Growth Rate of India

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India’s stock market has hit a brake lately, thanks to rising rate worries in the United States. Still, iShares India 50 ETF (INDY - Free Report) is off just 1% this year versus an 8.1% decline in the S&P 500. Agreed, the fund flow in recent weeks has been choppy as FIIs remained net sellers in anticipation of several Fed rate hikes in 2022, with the first one highly expected in March. But investors should not forget that the Indian economy offers a great growth engine.

The investing trend in India may get better in the coming days due to strong global cues and budget outcome, which were largely supportive of the economy and market. Most importantly, for the first time in three decades, retail inflation in the United States is higher than India for four months.

In late January, IMF forecast India's GDP growth rate at 9% for fiscal 2022 ending in March. In early January, the World Bank projected India to be the fastest-growing economy. The agency had then retained its fiscal 2022 growth forecast for India at 8.3% and had upgraded it to 8.7% for fiscal 2023 from 7.5%, citing rebounding private capex cycle. The Reserve Bank of India projects the economic growth rate for 2021-22 at 9.2% and for 2022-23 at 7.8%.

Yes, coal shortages and high oil prices are tailwinds as India imports about 80% of its fuel needs. But growing vaccination and increasing mobility should position India in a better spot than what we have seen in the previous Fed policy tightening cycles.

Against this backdrop, it could be intriguing to study India’s investing scenario on a sectoral basis. It is worth to bet on sectors (especially in the light of the recent budget announcement) that hold promises. Nicely enough, ETF issuers probably have sensed this need of the hour and have been launching ETFs on the Indian sectors lately.

Below we highlight those.

Nifty India Financials ETF (INDF - Free Report)

Management of INDF pointed out that historically, the banking sector has grown faster than GDP. Although the momentum has slowed lately due to lack of corporate capex growth, the government is striving to boost the move by increasing its own spending on infrastructure.

Also, per research conducted by Bloomberg and Goldman Sachs Global Investment Research, banks in Nifty are projected to record 25% earnings per share growth in calendar year 2022. Banks offer decent valuation too, with a near-term P/E ratio of 19.7X against 22.2X P/E offered by Nifty.

Per the investment case provided by the issuer, India’s private-sector financials are actually the FANGs of India. Stocks of India’s private sector financial companies like HDFC Bank, ICICI Bank, Bajaj Finserv and Kotak Mahindra have gained market share on a continuous basis and had a "defensible “moat” against new competition."

INDF is off 1.7% this year and has lost 0.4% in the past week. This is against the 2.7% decline of the S&P 500.

VanEck Digital India ETF DGIN

This fund is a new entrant and will hit the market on Feb 15. Investors should note that this digital ETF could be a good bet as the launch of 5G auctions in 2022 will help boost telco sector, which in turn, may benefit the fund DGIN too. Digital financial services are also on the rise. The latest budget is also focused on broadening the areas of such services.

The fund DGIN puts about 25% weight in stocks like Reliance Industries (8.58%), Infosys (8.42%) and Tata Consultancy Services (8.00%).  Information technology takes about 62.3% of the fund while communication services accounts for about 8.6% of the fund.

Columbia India Consumer ETF (INCO - Free Report)

Consumer demand in India at current prices, when converted into dollars, is just 1% lower than its pre-pandemic level. With vaccinations and booster doses gaining traction, we expect the sector to gain more ground in the coming days.

This 31-stock ETF focuses on companies in India's growing consumer industry. Titan Co Ltd (7.47%), Tata Motors (6.99%) and Avenue Supermarts (5.76%) are the top three companies of the ETF INCO. Consumer Discretionary accounts for about 58.62% of the fund INCO while consumer staples makes up about 41.38% of the ETF. INCO is down 3.4% this year and has been flat in the past five-day period.


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iShares India 50 ETF (INDY) - free report >>

Nifty India Financials ETF (INDF) - free report >>

Columbia India Consumer ETF (INCO) - free report >>