Investing In India: Earnings Vs. Small-Cap ETFs

Investing In India: Earnings Vs. Small-Cap ETFs

Summary

The WisdomTree India Earnings ETF invests based on the WisdomTree India Earnings Index. Using an in-house index is common for WisdomTree ETFs.

The iShares MSCI India Small Cap Index ETF invests based on the MSCI India Small Cap Index. MSCI is an industry leader in developing equity indices.

Even when looking at the larger universe of India-focused ETFs, both ETFs rank well in Total Return. SMIN tops those I examined, thus earning a Buy rating. Hold EPI.

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1xpert/iStock via Getty Images (This article was co-produced with Hoya Capital Real Estate ) Introduction

With its land mass, large English-speaking population, and democratic government, India should be a good place to invest. When compared to the performance of the US market, Indian stocks have not produced, but compared to popular International and Emerging Market ETFs, India has been a positive place to be invested.

While there are plenty of funds covering the Indian market, this article reviews a pair that take a more narrow approach: the WisdomTree India Earnings Fund (NYSEARCA: EPI ) and the iShares MSCI India Small-Cap ETF (BATS: SMIN ). I would rate EPI a Hold and SMIN a Buy at this time. An overview of India

cdn.britannica.com India occupies the greater part of South Asia. Its capital is New Delhi, built in the 20th century just south of the historic hub of Old Delhi to serve as India’s administrative centre. Its government is a constitutional republic that represents a highly diverse population consisting of thousands of ethnic groups and likely hundreds of languages. With roughly one-sixth of the world’s total population, India is the second most populous country, after China. Source: www.britannica.com

Some believe India can become an even bigger player on the world stage due to the number of English-speaking people: 10.35% of total population of India speaks English. This makes India the second largest English-speaking country in the world. Most educated people in India speak English.

Of course to become a manufacture-exporting power to the world’s importers means taking on China. There are other factors to consider besides labor costs. The next table highlights a few. intouch-quality.com The intouch.quality.com site explained some of the above rankings and what they measure: One area where India suffers a deficiency is in “know-how”, which includes the breadth and depth of specialized skills at work. We see this directly at play in the quality and complexity of the country’s top export products. This metric also measures employers’ perceived ease at filling job vacancies.

India falls behind many of its neighbors with regard to factors the World Economic Forum uses to rank countries in their human capital report . India ranks 103rd overall, while China ranks 34th.

The relatively low labor participation rate in India – just 67 percent among the 25-54 age group as of 2017 – also hurt the country’s human capital rank. India’s employment gender gap , one of the world’s largest, was another major contributor. In contrast, China achieved a labor participation rate of 88 percent for the same age group.

On the positive side, India has performed relatively well in terms of quality of education, staff training, and economic complexity. This can be seen in the number of tech jobs US companies have “exported” to India.

As I see China being a big obstacle to India capturing a larger share of the world’s manufacturing base, I found another site that provided more data to compare India with China. I included the USA as a reference point. theglobaleconomy.com; compiled by Author India’s labor force dwarfs all of Southeast Asia combined. The internal economy has another plus besides being the 2nd most populated country. They rank in the middle (97th) in the percent of the population over 65; China ranks 59th. Addressing India’s poor labor participation rate would help it compete on the world stage. The 11th place ranking in forecasted economic growth in 2026 may be factoring that in. If not, that adds opportunity for even higher growth.

On the concern side, is the Happiness Index ranks India 57th, which is below China. Talk about zapping one’s motivation. The Heritage Foundation Freedom Index rates India 131st (out of 177), which places them in the “mostly unfree” grouping. They are ranked below Russia (?) and above China. Exploring the WisdomTree India Earnings Fund

Seeking Alpha describes this ETF as: The fund is co-managed by Mellon Investments Corporation and WisdomTree […]

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