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The Ultimate Guide to Investing in India

Invest in the World's Second Most Populous Country

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Many international investors think of China as Asia's most promising emerging market, but its neighbor to the southwest may be poised to overtake it in the coming years. Investing in India may seem foreign to many in the United States, but the country's positive demographics and rapidly growing economy make it a great opportunity for international investors.

An Overview of India's Economy

India's economy is best-known for its information technology and business process outsourcing industries. But the country also ranks second worldwide in farm output and 12th in the world in terms of nominal factory output. Combined, these industries have propelled the country's economy to become the fourth largest in the world, based on purchasing power parity (PPP).

The country also houses one of the fastest growing workforces in the world. The average Indian citizen is just 25 years old (2011), while its population is expected to become the world's largest by 2025, according to U.S. Census Bureau estimates. Meanwhile, the country has the third largest higher education system in the world, after the U.S. and China, according to a report by the World Bank.

The country's 2010 economic statistics included:

The Benefits and Risks of Investing in India

India's longstanding parliamentary democracy and liberal economic policies make it a safer destination than many emerging markets. But the country's unstable geopolitical environment and several instances of terrorism on its soil pose some risks that should be considered before investing in India.

The benefits of investing in India include:

  • Positive Demographics. India has a youthful, educated and growing workforce that should help support its economic growth.
  • Strong Economic Growth. India has realized strong historical growth rates, particularly in the information technology and business process outsourcing sectors.
  • Stable Government. India has maintained a strong parliamentary democracy since its political freedom from Britain's rule some 50 years ago.

The risks of investing in India include:

  • Geopolitical Instability. India is located in a somewhat unstable geopolitical region and has witnessed several terrorist attacks on its soil.

The Best Ways to Invest in India

There are many different ways to invest in India, ranging from U.S.-listed exchange-traded funds (ETFs) to securities listed on its own Bombay Stock Exchange (BSE) and National Stock Exchange of India (NSE). ETFs represent the easiest ways to gain exposure without worrying about the legal and tax implications of buying American Depository Receipts (ADRs) and foreign-traded securities.

Popular Indian ETFs include:

  • WisdomTree India Earnings Fund ETF (NYSE: EPI)
  • iPath MSCI India Index ETN (NYSE: INP)
  • PowerShares India Portfolio ETF (NYSE: PIN)
  • iShares S&P India Nifty 50 Index Fund (NASDAQ: INDY)
  • Market Vectors India Small Cap Index ETF (NYSE: SCIF)

India's most popular ADRs include:

  • Tata Motors Limited (NYSE: TTM)
  • ICICI Bank Limited (NYSE: IBN)
  • Dr Reddy's Laboratories Limited (NYSE: RDY)
  • Infosys Ltd. (NASDAQ: INFY)
  • Rediff.com India Limited (NASDAQ: REDF)

Key Takeaway Points

  • India's positive demographics and booming economy make it a great investment opportunity for international investors.
  • India faces fewer risks than many emerging markets, with its longstanding democracy and liberal economic policies, but geopolitical risks should be considered.
  • International investors looking to invest in India should take a look at the country's many U.S. traded ETFs and ADRs to avoid possible legal and tax issues.

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