India ETFs: India’s national ID scheme to benefit whole economy

Apr 18th, 2012 | By | Category: Equities

Access to financial services in India is undergoing a revolution, making the subcontinent even more attractive to UK investors, according to Duncan Lawrie Private Bank. This month the process has begun to catalogue a further 400 million Indians into the world’s biggest biometric identity system, enabling them to open bank accounts and receive food subsidies and other benefits directly.

India ETFs - India's national ID scheme to benefit whole economy

Edward Bland, Director and Head of Research at Duncan Lawrie Private Bank: We already see India as one of the most promising and important of the emerging markets for investors. Biometrics will reinforce this belief.

Edward Bland, Director and Head of Research at Duncan Lawrie Private Bank, says: “We already see India as one of the most promising and important of the emerging markets for investors. Biometrics will reinforce this belief, because the new system empowers millions of Indians to directly receive subsidies and wages, rather than rely on the shaky distribution infrastructure which is currently in place, and is frequently abused by its providers. Once the system is opened up, banks will be better prepared to take deposits and potentially lend money to the wider population. This has the potential to broaden the capital base of the economy.”

The biometric identity project administered by the Unique Identification Authority of India is popularly known as “Aadhaar” and involves giving individuals a unique number based on a photograph, fingerprints and iris scans.  By the end of this year, some 200 million people will already be in the scheme, with the number rising to 600 million in two years’ time, more than half the country’s population.


DB X-trackers S&P CNX Nifty ETF (XNIF)

– Tracks the S&P CNX Nifty Index, providing diversified
exposure to 50 large-cap companies in India, including
a 27.6% weighting to Financials

– Over-collateralised (currently 121.75%) swap-based
replication with full transparency to underlying
swap collateral basket holdings

– UCITS IV compliant, London listed, UK Reporting
Status, eligible for ISAs and SIPPs

– TER of 0.85%, fair for an emerging markets fund
and considerably less than actively managed mutual
funds offering comparable exposure

Biometrics enable government agencies to overcome one of India’s major problems, which is the misappropriation of subsidies and benefits before they reach the intended recipient. It has been estimated that around one-third of the nation’s benefits bill is being lost, according to the scheme’s chairman. Under Aadhaar, a family will be able to withdraw benefit payments or wages to pay for groceries without the payments being intercepted and unofficially taxed by government agents or village heads.

Edward Bland adds: “The great thing about Aadhaar is that it specifically helps the millions of disadvantaged people in rural areas. But just as important, it gives such people the chance to open a bank account, obtain credit and potentially establish a medical history for the first time. The UID (Unique Identification) system is by definition long term, but the potential gain for the financial services sector and the economy is enormous. India really is an economy to watch in 2012 and beyond.”

Duncan Lawrie is not alone in being positive on India. Pratip Gupta, Head of Equities at Deutsche Equities India, part of Deutsche Bank, believes the Indian market will continue to attract foreign institutional investors’ (FII) money, as most foreign investors are still underweight the country. “We have seen about $7 billion of FII money coming into India [in the year to date]. That seems a lot of money but small when compared to the size of the Indian markets,” Gupta said. “A lot of foreign investors have missed [the January and February] rally, as the market went up too soon and too fast. Still, there are many FIIs who are underweight on India and there is potential to attract lot of more FII inflows,” he added, speaking at a recent Deutsche Equities India investor conference.

UBS has also recently come out more bullish on India. The Switzerland-based bank said in a research note published earlier this year that “it is time to add beta and turn less defensive on Indian stocks”. Meanwhile, Vincent Lagger, manager of the Swiss & Global Asset Management Chindonesia Fund, believes there are a number of reasons why investors should feel positive about Indian equities. He, too, points to foreign institutional investment inflows, but also highlights pro-growth monetary policies and improving rural consumption.

India ETFs

For investors looking to gain exposure to Indian equities, there is a growing list of ETFs & ETNs to choose from, tracking a range of different India equity indices.

The following three London-listed funds track the S&P CNX Nifty Index. This index offers exposure to 50 of the largest and most liquid Indian securities listed on the National Stock Exchange of India:

iShares S&P CNX Nifty India ETF (NFTY) TER 0.85%

DB X-tracker S&P CNX Nifty India ETF (XNIF) TER 0.85%

Lyxor India ETF (LNFT) TER 0.85%

The following four funds, all London listed, track the MSCI India Index. This index is intended to reflect the performance of the Indian equity market by targeting all companies with a market capitalisation broadly within the top 85% of the Indian investable equity universe:

Credit Suisse MSCI India ETF (CIN1) TER 0.72%

DB X-tracker MSCI India ETF (XCX5) TER 0.75%

Amundi MSCI India ETF (CI2) TER 0.80%

Source MSCI India ETF (MXIS) TER 1.15%

The following fund is listed on Euronext Paris and tracks the Dow Jones India 15 Index. This index represents 15 of the largest and most liquid stocks traded on the Bombay and National stock exchanges of India:

EasyETF DJ India 15 ETF (EIA FP) TER 0.65%

The following is a selection of specialist US-listed exchange-traded products tracking India:

EGShares India Consumer ETF (INCO) TER 0.89%

EGShares India Infrastructure ETF (INXX) TER 0.85%

EGShares Small Cap India ETF  (SCIN) TER 0.85%

Van Eck India Small-Cap Index ETF (SCIF) TER 0.85%

Direxion Daily India Bull 3x Shares ETF (INDL) TER 0.95%

Barclays iPath MSCI India Index ETN (INP) TER 0.89%

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