The Accidental India Underweight

By sheer force of its humanity, India’s GDP was $2.9 trillion in 2019, making it the world’s fifth-largest economy. The country’s 3% share of the global economic pie will expand as the Global South gains influence relative to the industrialized world. It may have to wait out 2021 though. The country witnessed real GDP growth of around 4% in 2020, though its battle with COVID-19 sent the economy reeling this year. Fitch has it contracting 7.9% in 2021.

The International Monetary Fund (IMF) anticipates India will rank sixth in the global order when 2021 is said and done, though most seers have it overtaking the U.K. and then Germany sometime this decade.

Figure 2: IMF Estimate, Nominal GDP, 2021 ($ Trillion)

Estimate Nominal GDP 2021 Trillion

Make no mistake, India is an impoverished nation. Deeply impoverished. For examples of real-life problems that fortunately do not confront us in the West, one of Narendra Modi’s first initiatives as prime minister was finding a way to offer sanitary conditions for the populace to go to the bathroom with dignity, as many in rural villages have no choice but to use communal facilities.

India is one of the countries in emerging markets that truly is still “emerging.” By some measures, it could be a frontier market, but the country’s capital markets are somewhat established, so it has graduated to emerging status.

If you can get past India’s intense COVID-19 struggle and realize that most Western advisors might have a half percent or a percent of equity capital in the country, therein lies a potential edge.

WisdomTree has two India funds.

One has a large asset base due to the classic ETF first-mover advantage; it was launched in 2008 and was then the only India ETF. The other one does not get much love because, frankly, not many people ask us about India.

The older one is the WisdomTree India Earnings Fund (EPI). It employs a modification of capitalization weighting, where each company’s weight is found by dividing its earnings by the total earnings of all the other companies. 

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