Here's Why 2026 Could Be a Breakout Year for India ETFs

India’s markets started December with a stumble, with the NIFTY 50 falling about 0.47% month to date. However, the sentiment appears to be shifting. The index, representing 50 of the largest companies listed on the National Stock Exchange, has gained 0.18% over the past five sessions and climbed 0.57% on Friday alone.

India’s economic outlook remains optimistic, underscored by the NIFTY 50’s 10.19% year-to-date gain and a 6.43% rise over the past six months. Supportive demographics, increasing AI-related investments, progress in chip design and digital infrastructure and rapid digital transformation further strengthen its long-term appeal.

Global Fund Houses Eye India’s $3.3 Trillion Potential

According to CNBC, India’s expanding investor base is drawing growing global attention and renewed interest from fund houses. Multinational companies are increasingly listing their India units, boosting the country’s primary market and creating more investment opportunities for fund managers.

Per the CNBC article, as more retail investors enter the market, a shift in household savings into financial assets is accelerating market inflows, creating rapidly growing opportunities for asset managers. The country’s growing pool of young, long-term investors benefits both fund houses and multinationals.

Bain & Company projects that retail investor-driven assets in India’s mutual fund industry will grow from 45 trillion rupees in fiscal year 2025 to 300 trillion rupees ($3.3 trillion) by 2035. Rakesh Pozhath, partner at Bain Bengaluru, as quoted in the abovementioned CNBC article, noted that there is significant room for growth in India’s mutual fund industry, as individual assets account for less than 15% of GDP, compared with around 80% in mature markets like the United States and Canada.

Big Tech Bets Billions on India

According to another CNBC article, big tech is investing billions in India, attracted by its data center resources, large talent pool, digital users and market potential. Microsoft MSFT and Amazon AMZN pledged over $50 billion for India’s cloud and AI infrastructure in less than 24 hours, according to the article.

Per the CNBC article, Microsoft plans to invest $17.5 billion in India over the next four years, while Amazon recently unveiled an additional $35 billion investment, building on the $40 billion it has already invested.

India aims to leverage its expertise in the information technology sector to build and deploy enterprise-level AI applications, presenting a huge opportunity for Big Tech. The country also offers ample space for large-scale data center development. With lower power costs than European hubs and a growing renewable energy capacity, the economics for data centers are increasingly compelling.

Simply put, the economy is hitting a sweet spot where global cloud providers, AI innovators and domestic digitalization converge, creating one of the world’s most promising data center markets.

Jefferies Sees a Stronger 2026 for India Equities

According to Jefferies, as quoted on Reuters, India’s equities are expected to outshine the broader emerging-market economies in 2026, supported by a rebound in corporate earnings and favorable macro conditions. Jefferies forecasts the NIFTY 50 to reach 28,300 by the end of 2026, marking an upside of about 8.65% from current levels.

Per Jefferies, persistent domestic flows will be a key factor supporting India’s economy in 2026.

Exploring India ETFs

Against this backdrop, we have highlighted a few India ETFs that investors can consider to capitalize on the country’s optimistic outlook.

While short-term headwinds, such as heavy foreign portfolio outflows, the lack of a U.S. trade deal and Mexico’s recent tariff hike affecting the economy’s car exporters, may pose challenges, India’s long-term economic fundamentals remain strong, offering investors an opportunity to bet on the country’s growth story.

Investors can consider iShares MSCI India ETF INDA, WisdomTree India Earnings Fund EPI, Franklin FTSE India ETF FLIN, iShares India 50 ETF INDY and First Trust India NIFTY 50 Equal Weight ETF NFTY.

INDA has gathered an asset base of $9.44 billion, the largest among the other options. Regarding annual fees, FLIN is the cheapest option, charging 0.19%, which makes it more suitable for long-term investing.

With a one-month average trading volume of about 5.2 million shares, INDA is the most liquid option, offering investors easier entry and exit while minimizing the risk of significant price fluctuations, ideal for active trading strategies. However, investors considering India are encouraged to adopt a long-term approach to the South Asian economy.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research