ETF providers including Market Vectors and GlobalX have already provided smaller-cap exposure to China and Brazil, which make up half of the so-called BRIC countries -- Brazil, Russia, India and China. It would be reasonable to think a Russian small-cap fund may be coming soon.
The underlying index for India Small Cap has 75 holdings ranging in size from $100 million to $2 billion, with a median market cap of $473 million. Two technology industries (IT services and software) comprise 16% of the ETF, followed by banks at 12%.
Part of the idea behind exposure to small caps is to capture the "story on the ground," which is often obscured in the mega-cap funds. As such, the small-cap fund allocates 19% to consumer stocks. The position in banks captures the story on the ground in terms of financing startup businesses, which will be a big part of India's future development.India Small Cap doesn't take significant single-stock risk, with the largest holding, Patni Computer Systems, having only a 3.4% weighting. Most of the names will be unfamiliar except for the occasional Indian subsidiary of an American company such as Dish TV (DISH) or the smaller subsidiary of a large Indian conglomerate such as Tata Communications (TCL). There is a presentation about investing in Indian small-cap stocks on the EG Shares website with all sorts of statistics about the attractiveness of the country and of this segment of the market related to growth, demographics, education and relatively low debt. It's a useful read for anyone interested in the country. While the numbers are compelling, the big picture is easy to understand. A big driver for many emerging markets has been the modernization of society and an ascending middle class. Specific to India is outstanding education, resulting in many people taking outsourced professional jobs making $10,000 to $20,000 a year, which, while low by American standards, is game-changing in India. When one considers that there are more than 1 billion people and the average age is around 25 years old, the India theme has many years to play out.
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