New ETF gives pure play access to India’s financial services stocks for the first time

Amit Anand, NextFins

US-based NextFins has launched INDF, the Nifty India Financials ETF, based on the Nifty Financial Services 25/50 Index, which reflects the performance of Indian banks, financial institutions, housing finance companies, insurance companies and other financial services companies.

These are the companies most likely to grow, says Amit Anand, co-founder at the firm. He and his colleagues have come from the hedge fund world to launch the fund.

“I am Indian and grew up in the US and have been investing professionally for 15 years,” Anand explains.

“Throughout my hedge fund investing career, I always wanted to invest in India and the biggest challenge was corporate governance.”

There is little doubt that there is plenty of room for growth in India which is predicted to be the third largest economy in the world by 2030, and the fastest growing over the next decade.

It is currently the fifth-largest economy in the world and Indian financial services companies are poised to be a key component of that growth, Anand says.

“If you look at investing in the Indian stockmarket, it hasn’t generated the returns you would expect,” Anand explains. “The Indian stock exchange is one of the oldest in the world but companies tend to be family controlled so it’s very hard to work out which company will do well.”

Looking for a more reliable source of returns, Anand says: “I realised that there is a sector which is the crown jewel of the stockmarket and that is the financial services sector which has outperformed, indeed is the best performing in India.”

Financial services reflect India’s growth story as more people move into the middle classes, accessing the Internet through smartphones which enable them to discover financial products.

“The sector has grown faster than GDP and, equally importantly, has good corporate governance because the Indian Central Bank tightly regulates financial service companies.”

The large financial services companies are often investor owned and run by professional management teams appointed by the investors. “For me, that was the light bulb that made me launch an ETF based on the financial sector in India,” Anand says.

India is not an easy market to access at any point with regulatory hurdles preventing overseas investing taking part.

The ETF listed on 21st October and has achieved 11 per cent returns in the last 20 days. “We come from the hedge fund world and investing in Indian financials has been an open secret there,” Anand says. “We have had a lot of good support from family offices, institutions and high net worth investors. The feedback is that the time has come for a specialised India financials ETF.”

Anand and his team partnered with Nifty to create an index that both reflected their methodology in selecting companies in their indices but also met the US’s diversification requirements for an ETF.

Anand comments that a lot of investors access the emerging markets through the EEM index, which has an 8 per cent weight in India. “That is too low a weight for a country as large and dynamic as India - that is why we felt people deserved direct access to the market”

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