FLIN - PIN: A Good India Play

2023-12-28 15:44:09 ET

Summary

• India's economy is growing rapidly and benefiting from tensions with China, making it an attractive investment opportunity.
• The Invesco India ETF provides exposure to the Indian market while emphasizing quality and yield.
• The PIN ETF's portfolio includes top holdings in various sectors, such as Reliance Industries, HDFC Bank, and Infosys.

India is certainly not an economy to be overlooked. Touted as one of the fastest-growing economies, India has been a direct beneficiary of international tensions with China economically, with its stock market doing quite well in 2023. India has consistently shown robust economic growth over the years, making it one of the fastest-growing major economies in the world. With a large and young population, India's domestic consumption is expected to continue driving economic growth.

For those looking to gain exposure, the Invesco India ETF ( PIN ) provides an excellent window to tap into this growth potential. PIN is a fund that aims to replicate the performance of the FTSE India Quality and Yield Select Index. This index is composed of Indian equities that have been filtered based on yield and quality indicators. The fund's investment strategy is to invest at least 90% of its total assets in the securities that make up this index. PIN is an excellent choice for investors looking to gain exposure to the Indian market while emphasizing quality and yield.

Breakdown of ETF's Holdings

PIN's portfolio includes diversified selection of Indian equities. Its holdings are spread across various sectors, with significant allocations to financials, information technology, and consumer discretionary. The diversity of its holdings allows the fund to tap into the growth of various sectors of the Indian economy. Top holdings include:

1. Reliance Industries Ltd (8.66% of Fund) - Reliance Industries, an Indian multinational conglomerate, operates across various sectors, including petrochemicals, refining, and telecommunications.
2. HDFC Bank Ltd (8.00% of Fund) - HDFC Bank, one of India's leading private sector banks, offers a wide range of financial services throughout the country.
3. Infosys Ltd (5.47% of Fund) - Infosys, a global pioneer in next-generation digital services and consulting, empowers clients in 46 countries to navigate their digital transformation.
4. Tata Consultancy Services Ltd (3.88% of Fund) - TCS, with over 50 years of experience, is a renowned IT services, consulting, and business solutions organization, partnering with some of the world's largest businesses in their transformation journeys.
5. Larsen & Toubro Ltd (2.38% of Fund) - L&T, a prominent conglomerate, excels in technology, engineering, construction, manufacturing, and financial services, operating globally.

Sector Composition and Weightings

The middle class in India is expanding rapidly, leading to increased disposable incomes and higher consumption levels. This trend is expected to continue, creating a favorable environment for businesses across various sectors, such as consumer goods, retail, and services. The ETF's sector composition is skewed towards certain sectors, with the most significant allocations to Financials (18.34%), Information Technology (14.35%), and Consumer Discretionary (12.07%). Other sectors represented in the portfolio include Energy, Industrials, Materials, Healthcare, Utilities, and Consumer Staples. I think the Financial weighting is important given that the more the economy grows, the more that sector in particular should benefit.

Peer Comparison

In the domain of India-focused ETFs, PIN stands out for its quality and yield emphasis. Other similar ETFs include the iShares MSCI India ETF ( INDA ), and the Franklin FTSE India ETF ( FLIN ). While all these funds offer exposure to the Indian market, PIN's emphasis on quality and yield is a differentiator. PIN has performed better because of this more fundamental focus.

Pros and Cons of Investing in PIN

Investing in the Invesco India ETF comes with certain advantages and potential drawbacks. On the one hand, the fund provides exposure to one of the fastest-growing economies globally, with a focus on high-quality stocks. Furthermore, with its focus on yield, the fund can offer investors a potential income stream.

On the other hand, investing in PIN also entails exposure to the risks inherent in the Indian economy, such as political instability, currency fluctuation, and potential regulatory changes. Furthermore, the fund's expense ratio of 0.78% is slightly higher than some of its competitors.

Conclusion

The Invesco India ETF presents an attractive investment opportunity for those looking to tap into the potential of the Indian market. With its focus on quality and yield, the fund offers a targeted approach to investing in this vibrant and rapidly growing economy. While there are risks involved, the potential for high returns makes PIN a compelling consideration for any investor looking to diversify their portfolio with emerging market exposure.

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