India Equities

What to Know Before Buying India Equities

In a rocky year for emerging markets, the India stock market is considered to be fundamentally strong. India’s blue chips have been an important component of diversified emerging market ETFs that have been holding up this year.

A review of the performance of ETFs, which track India’s major stock indexes, also shows India’s blue chips and counter-cyclical stocks to hold their own in global downturns.

The growing purchasing power parity of India’s rising middle class is helping to bolster these sectors. India’s consumer sector has fared better than many sectors, as evidenced by the performance of the EGShare India Consumer ETF.

The small-cap sector has been another bright spot. Longer term, the blue chips are outperforming the market. The IShares India 50, which tracks the Nifty 50, has outpaced its peers.

Getting Started With Investing in India Shares

Thousands of stocks trade on India’s two major stock exchanges – the National Stock Exchange of India (NSE) and the Bombay Stock Exchange (BSE). Less than half of these stocks, however, make up most of the market capitalisation of the exchanges.

As in any emerging market, investors should be cautious about investing in companies with no or little analyst coverage or illiquid shares. India has many strong blue-chip stocks and well-respected technology companies. Companies such as Tata and Infosys are almost household names around the world. Lifted by India’s growing middle class, automotive and telecommunication stocks also do well.

Most retail traders access Indian stocks through online trading platforms. Foreign institutional investors can invest directly in the Indian market, whereas individual investors must go through a broker. Fortunately, a number of foreign investors’ favourite Indian companies trade as Indian ADRs (depository receipts) on US exchanges.

Another way of tapping Indian stocks is to invest in Indian ETFs trading on US exchanges, such as the iShares MSCI India ETF. ETFs are mutual funds that trade like stocks.

Safe Vehicles for Volatile Emerging Markets – ETFs, ADRs and Indexes

How the India Stock Exchange Works

India’s major stock exchange is the Mumbai-based NSE. Established in 1992, the exchange is fully automated. The market capitalisation of the NSE is $1.7 trillion. The oldest and still very active stock exchange in India is the Bombay Stock Exchange (BSE). Over 2,800 stocks, as well as related derivatives products, trade on the exchange.

Major Indices for India Stocks

The CNX Nifty, a diversified index of 50 Indian stocks, is used as the bellwether of the Indian stock market worldwide. These 50 stocks equal about 66% of the market cap of the NSE.

A number of exchange-traded funds (ETFs) track the Nifty 50, and futures and options trade on these ETFs on several global exchanges. ETFs also trade on sectoral indexes of the NSE.

The BSE’s major index is the BSE Sensex, another benchmark of Indian economic sentiment. Top stocks in terms of volume traded include blue chips in the industrial (such as Tata Steel), financial, consumer goods, and pharmaceutical sector.

MoneyControl is the leading news site on the Indian stock markets.

What to Look Out for When Investing in India Shares

With the expected rise in US interest rates by the end of 2015 and a stronger dollar, India like other emerging markets may seem some pressure on its equity sector. It is a good time to look at defensive stocks that do well in any market such as consumer goods, energy and IT.

Profits in India’s commodity sector weakened owing to China’s economic slowdown. This sector should slowly pick up strength, especially if China’s appetite for commodities comes back.

Whichever way global markets move, the Indian market provides opportunities to invest in solid companies at each stage of the business cycle.

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