India's Market Embarks: The Voyage of Opportunity and Risk in U.S. Stock ETF Investments

India, as one of the most dynamic emerging markets globally, has seen its capital market growth momentum garner significant attention from international investors in recent years. From the low point in March 2020 to the end of 2023, the total market capitalization of the Indian stock market has roughly doubled, approaching a valuation close to 4 trillion U.S. dollars.

Indian ETFs listed on the U.S. stock market provide a convenient gateway for global participants. Through this window, investors can efficiently engage in and share the dividends of India's economic development.

Why is the Indian stock market "unstoppable"?

(1) India's demographic dividend and economic takeoff

In the fourth quarter of 2023, India's GDP grew by 8.4% year-over-year, far exceeding the market expectation of 6.6%. While the population continues to grow rapidly, India's GDP per capita keeps increasing. From 1960 to 2022, India's average annual GDP per capita growth was 5.57%, higher than the United States' 5.36%, and the current base is still very low, offering much room for imagination.

Chart: India's GDP Per Capita (Current US Dollar)

At the same time, India's population structure is becoming increasingly youthful. In 2023, the median age of the Indian population is 28 years, and a relatively young population supports economic growth. The youthfulness of the population structure is a source of long-term dividends for both the Indian economy and its stock market.

(2) Tertiary sector strategy attracts a large inflow of foreign capital

India has attracted a significant amount of foreign direct investment (FDI) through service outsourcing. Though its manufacturing development is not mature, a large number of high market-value service industry companies are sufficient to support the stock market's upward trend. The inflow of foreign capital has enlarged India's stock market funding pool, increased the activity of stock market transactions, enhanced stock liquidity, and driven stock market prosperity.

(3) A healthy entry and exit system

The Indian stock market ensures the quality of companies in the market through strict listing and delisting systems. Companies that do not meet regulatory requirements are forced to delist, and their executives, founders, and associated companies are barred from entering the securities market or relisting for the following 10 years. These robust regulations compel listed companies to continuously self-reflect and also purify the market environment.

So, if you are optimistic about India's future development and wish to participate in the process but find it inconvenient to directly open an account in India, you can easily invest in Indian ETFs on the U.S. stock market. Here are the features of one such ETF:

iShares MSCI India ETF (INDA): Closely tracks the MSCI India Index, primarily covering the performance of large and mid-sized companies listed on Indian exchanges.

What are the risks associated with the volatility of Indian ETFs in the U.S. stock market? Although the Indian market is full of opportunities, investors also need to face some challenges.

(1) Exchange Rate Risk

For example, fluctuations in the Indian rupee exchange rate can affect ETFs priced in dollars: when the stock prices of Indian companies rise, if the rupee depreciates significantly, then when converted into dollars, the net value of the ETF might still fall;India's unique policy and regulatory changes, unstable economic data, and severe market sentiment fluctuations may also bring uncertainty;

(2) Leveraged ETF Investment Considerations

The aforementioned ETF, INDL, offers a leveraged ETF trading method. Leveraged ETFs are a double-edged sword that can amplify investment returns in the short term but may become a "money magnet" if held for the long term. The beneficial effect of leverage can automatically double or halve your money every day. If the market performs well for several consecutive days, your money can quickly multiply like a snowball.However, once the market declines, even just a slight correction, losses can be magnified because the leverage will halve your existing amount again and again. For example, suppose you have 100 dollars, and you used a magic box that doubles your daily returns. On the first day, the market goes up by 10%, and your money turns into 120 dollars; but on the second day, the market falls by 9.09%, and although the index returns to the starting point, your money is only left with 98.18 dollars. This is because losses are also doubled.At the same time, leverage incurs additional costs while operating, such as transaction fees, interest on borrowed money, etc., which will gradually erode your principal invisibly. Therefore, leveraged ETF tools are more suitable for investors who have an accurate grasp of market fluctuations and are flexible in short-term operations, and not suitable for those seeking steady, long-term returns. In short, playing with leveraged ETFs is like riding a wild horse, requiring high skill and caution, otherwise, you may suffer unexpected losses.

Overall, investing in India is like controlling an elephant full of vitality but occasionally kicking up: you must always be ready to face the "Bollywood-style plot twists" of the political situation, enjoying the drama of economic growth potential while guarding against the "improvised script changes" of policy changes.The threshold for foreign capital access may vary, offering roller-coaster-like excitement; the tax environment is somewhat like playing a "treasure hunt game";The legal system is rich and diverse but also tests patience, and handling disputes is like resolving the delicate balance between curry and pulled tea.However, the rise of the middle class and market demand in this land are like dazzling fireworks, drawing countless heroes to bow down.In short, investing in India is a wonderful adventure where risk and opportunity dance together—investing in Indian ETFs in the U.S. market requires mastering the pulse of the Indian stock market and understanding your own preferences.Carefully select ETFs, understand their strategic pros and cons and risk-return characteristics, keep up with market trends, and dance to the rhythm of investment, aiming to balance risk and opportunity, leisurely steer the financial vessel from Mumbai to Wall Street, and sail towards the shore of long-term returns!