India is a breakout star during a tough year for emerging markets investing

Published Wed, Dec 20 20238:54 AM EST

2023 has not been a stellar year for international investing. Money has generally been flowing into the U.S. and out of Europe and emerging markets. The exception is India. The India SENSEX Index, an index of 30 large companies listed on the Bombay Stock Exchange, is up 18% this year. The iShares MSCI India ETF (INDA) is at a new high. There have been significant inflows into the larger ETFs that track India this year. INDA YTD mountain iShares MSCI India ETF, YTD Wednesday on ETF Edge we will look at investing in India with Burton Malkiel, Chemical Bank Chairman's Professor of Economics at Princeton University and author of the legendary investing text, A Random Walk Down Wall Street ; Kevin Carter, chief investment officer of EMQQ Global and the India Internet & Ecommerce ETF (INQQ), and Todd Sohn, ETF & Technical Strategist at Strategas Securities. Below is a Q & A with Kevin Carter, which has been edited for brevity and clarity. You have said that India is the perfect emerging market. Why? India hits every button for an emerging market economy. First, it has the most people, about 1.4 billion, and is now larger than China. Second, the population is very young: about sixty percent are under 30. Third, it's growing fast: India has the fastest-growing GDP of any major economy, about 7% annual growth for the last quarter. Fourth is government: India is the world's largest democracy. Fifth, India's talent pool is unmatched: the S & P 500 has 25 CEOs of Indian origin, including Alphabet and Microsoft. Finally, it is very tech-focused. What does that mean, tech-focused? In 2009, India rolled out a digital identification system, which has now enrolled almost the entire country. Every citizen got a unique 12-digit identity number, and was enrolled in a digital biometric database using fingerprints and eyeball scans. This enabled easy access to social and financial services. 1.3 billion have registered in the database, 780 million have opened a digital bank account, and 500 million have used it to get a smart phone, which you can get for $12. There's also a payment layer — instant and free transfer of money... The Indian economy has gone from paper to digital in 7 years. In 2016, less than 5% of the economy was digital. Today, 80% is digital. No other country on the planet has ever had this kind of digital transformation so quickly. How would you compare China to India? China has the same population but a larger GDP: about $17.7 billion to India's $3.8 billion. But as I noted, India is now growing much faster than China. China's population has peaked, but India is going to get a lot bigger. India seems to be the beneficiary of companies trying to diversify their supply chains out of China. Apple is now building its latest model iPhones in India and has plans to build as much as 25% of all iPhones in the country by 2025. Earlier this month India's Tata Group, announced plans to build India's largest iPhone plant, making it Apple's first Indian manufacturing partner. You run several international ETFs focused on the internet and ecommerce, including the India Internet & Ecommerce ETF (INQQ). Why the focus on internet and ecommerce in India? The internet companies are the fastest growing consumer companies. We own Bajaj Financial, an online consumer lending company. We own Jio Financial, which do online financial services. We own Info Edge, which does online real estate/job ads, and MakeMyTrip, which does online travel, and Angel One, which does online stock trading. All online. The India Internet economy may grow 500% by 2030. You're painting a very rosy scenario. What could derail this? There were a lot of China bulls 10 years ago who have cooled on China. India looks a bit like China did 15 years ago. Apple opened its first store in China 15 years ago; they opened their first two Apple stores in India in April of this year. The big difference is India is a democracy. The Indian stock market has performed close to that of the United States in the last 10 years, but the main China ETF (FXI) is down 36%. China has been a terrible performer because it has state-owned enterprises, specifically banks, and relatively few consumer companies. Not only is India strong economically, but they are largely neutral. In a world of hostility and wars, they can buy all of the Russian oil they want and still go to the White House for dinner. ETF Edge begins at 1:10 PM ET. You can watch here .