Is India the right investment right for you? 2 ETFs to consider

Last week, PowerShares India Portfolio (NYSE: PIN) became the second pure-play India-focused ETF, after last month’s launch of WisdomTree’s India Earnings Fund (NYSE: EPI). The PowerShares fund is market-cap weighted, adjusted for foreign fund access, and covers 50 India-listed companies and Indian American depositary receipts). Representing a broad swath of the Indian stock market, the companies in the index have market caps ranging from $3.4 billion to $91 billion.

Foreign investors used to the bulldozer governments typical of developing countries will find many aspects of India attractive. In stark contrast to China, it is a vibrant democracy closely scrutinized by a feisty media.

Yet it doesn’t come without risks. Its central coalition government depends on the support of parties that are often opposed to reforms and foreign ownership, especially in high-employment sectors like agriculture and retailing. Separately elected state and local governments have their own budgets and agendas. As a result, progress is often two steps forward and one step back. Every initiative must be endlessly negotiated through the labyrinth of central, state, and local politics, with lots of money and favors being traded en route.

Sixty percent of Indians depend on an ailing agriculture sector buffeted by the vagaries of weather, subsidies, and financing. Public sector units such as banks, railways, and airlines are the largest employers and are highly vulnerable to labor unrest. Strong labor laws protect workers and put a burden on large employers. The independent but overloaded legal system moves even slower than traffic on the antediluvian roads. Naturally, major projects can get easily derailed by disputes over property titles, compensation, or parochial politics.

Before investing your money in India, you have to be sure you have the stomach for the pitfalls and obstacles you’ll face there. But many believe the potential rewards far outweigh those risks. If that proves to be the case, investors in the new India ETFs should do well.

See the full article at Motely Fool

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