Investing in India’s rise – what makes India an ideal emerging market?

While smartphones and ecommerce have become ubiquitous in developed markets, 1.4 billion young consumers in India are only just now beginning to get online, experiencing the profound impacts of the Internet on daily life. The convergence of declining technology costs and a government focused on growing India’s connectivity are enabling significant economic growth and a digitization boom that is creating a ripe investment opportunity for those paying attention.

As the rest of the world transitions into this digital era, India is embracing technology and making significant investments in both physical and digital infrastructure, quickly taking the country into the age of connectivity.

With a swelling middle class of young, digitized consumers hungry for modernization, innovative companies in India are just now beginning to go public and join the ranks of the India Internet & Ecommerce Index (ticker: INQQ). For those interested in investing in emerging markets, the time is now to take a closer look at this thriving economy and increase exposure to what we believe will become India’s digital golden age.

India’s compelling growth story

With 1.8 billion people or 28% of the emerging markets population, pictures and graphs can’t possibly describe the sheer number of humans and the density in which they populate South Asia and its chaotic megacities. India is incredibly diverse, with over 2,000 ethnic groups, six major religions, and 22 government-recognized languages, creating both challenges and opportunities. A young population and favorable demographics only add to the importance of the region for investors in the coming decades.

India’s secret weapon – the India Stack

India has developed a unique “digital public infrastructure” over the past 15 years that is only now revealing its power and bearing fruits. This digital public infrastructure (aka the ‘India Stack’) refers to a set of digital infrastructure components and protocols that have been implemented in India to support the country’s digital transformation and enable a range of digital services. It was designed to provide a secure and scalable foundation for various government and private sector applications.

India has developed a unique “digital public infrastructure” over the past 15 years that is only now revealing its power and bearing fruits. This digital public infrastructure (aka the ‘India Stack’) refers to a set of digital infrastructure components and protocols that have been implemented in India to support the country’s digital transformation and enable a range of digital services. It was designed to provide a secure and scalable foundation for various government and private sector applications.

The India Stack consists of three key components:

Source: iSPIRT, Rahul Sanghi, via
Tigerfeathers, “The Internet Country” January 2021.

Aadhaar (which means “foundation) is a biometric identification system that assigns a unique 12-digit identification number to each Indian resident. It serves as a digital identity for citizens, allowing them to access various government services and private sector applications.

Unified Payments Interface (UPI) is a real-time payment system that facilitates instant fund transfers between bank accounts using smartphones. It allows individuals to send and receive money, pay bills, make merchant payments, and more, directly from their bank accounts. UPI has gained significant popularity in India and has simplified digital payments.

Digilocker is a cloud-based platform that provides individuals with a digital storage space to securely store and share their official documents and certificates. It eliminates the need for physical documents and enables easy access to important records, such as educational certificates, driving licenses, and government-issued documents.

These components of the India Stack work together to create a digital ecosystem that enhances convenience, efficiency, and accessibility for Indian citizens. The goal is to enable the delivery of various services, including financial services, healthcare, education, and more, through digital means while ensuring security and privacy. No other country on the planet has anything like the India Stack. It is our contention that the true power of this digital public infrastructure will not just facilitate India’s economic growth but accelerate it and largely define it. This is India’s secret weapon.

An ecommerce challenge unique to India

As India powers its large-scale digital transformation, many parts of its economy will be affected. A key economic player is the traditional kirana store – a hyperlocal neighbourhood provision store or “mom and pop” shop that carries a regular supply of essentials for a local neighbourhood. At first glance, these shops may seem insignificant – individual shops owned by individual owners – but due to the sheer size of India and the Indian retail market, kiranas make up a $450 billion industry.

As in many emerging and frontier markets, India’s existing retail spending is dominated by 13 million kirana stores that control 90% of India’s massive retail spending – a number that is quickly approaching $1 trillion annually. While “traditional” ecommerce players like FlipKart and Amazon are seeing significant growth, it appears that a hybrid ecommerce model will be a unique and major part of India’s digital economy. The newest part of the “India Stack”, the Open Network for Digital Commerce, should play a central role in the acceleration of this hybrid model.

Investing in India’s internet growth story

Currently, U.S. investors have around $8 billion USD in the 14 Indian equity ETFs trading on NYSE and NASDAQ. (This compares to $26 Billion in the 56 China ETFs currently available.) The largest, iShares INDA tracks the MSCI India Index, while iShares’ sibling INDY, the 3rd largest, tracks the “Indian Nifty Fifty” index. In India, the ETF market is quite small but quickly growing, with 90% inflows going into ETFs tracking the “Nifty Fifty”.

While the Nifty Fifty does offer exposure to some of the sectors that will benefit from India’s growth (consumer, financials, etc.), it has very little exposure to the Indian internet and ecommerce companies that should capture the most growth in the coming decades. In fact, we’d say it’s more than likely that some of them will one day join the Nifty Fifty.

That’s why we decided to create the India Internet & Ecommerce Index (ticker: INQQ), focused on providing investors with exposure to the growth occurring across the Internet and ecommerce sectors in India. The index covers over 20 companies operating in India, ranging from sectors like internet services, online retail, digital media, search engines, social networks, and more. The stage is set for the country to enter a golden age of digitization – will you be joining the revolution?

INQQ India Internet and Ecommerce ESG-S UCITS ETF (INQQ) offers investors the opportunity to access the rapid digitization of India.

For professional investors only. When you invest in ETFs your capital is at risk.