India ETFs Offer Compelling Growth Upside: Is the Risk Worth Taking?

The start to 2026 has been less than ideal for India equities, with the Nifty 50 Index down about 1.87% over the past five days due to tariff worries and foreign equity outflows.

However, the near-term softness may offer a compelling entry point into India ETFs, as short-term volatility continues to mask robust long-term growth fundamentals. The index, representing 50 of the largest companies listed on the National Stock Exchange, has advanced roughly 1.63% over the past six months and nearly 8.41% over the past year.

India’s economic outlook remains optimistic, driven by supportive demographics, a growing base of young and long-term investors, increasing AI-related investments, progress in chip design and digital infrastructure, and rapid digital transformation.

What’s Keeping India’s Market Under Pressure?

Uncertainty over U.S. tariffs remains one of the most pressing near-term challenges for India’s economy. According to Reuters, the United States has already slapped tariffs of up to 50% on goods from India. Trump is reportedly weighing tariffs as high as 500% on nations buying Russian oil, cautioning India about increased levies.

Additionally, following a record $19 billion in sales last year, foreign investors have already offloaded $900 million in India shares this January, per the abovementioned Reuters article.

Geopolitical tensions are likely to remain a key challenge for global economies in 2026, weighing on growth and keeping investor sentiment cautious. However, even amid a slowdown in global GDP growth in 2026, certain G20 economies are set to grow above the average, with India at the forefront.

According to the latest OECD Economic Outlook, as quoted on Statista, India’s real GDP is estimated at 6.7% in 2025 and 6.2% in 2026, fueled by resilient domestic demand, rapid digitalization and manufacturing gains.

Tariffs Bite but India’s Growth Story Stays Intact

India’s economic expansion is expected to outpace initial projections, fueled by strong domestic demand and government spending that are cushioning the impact of U.S. tariffs, per Reuters. According to the National Statistics Office, as quoted on the abovementioned Reuters article, India’s economy is projected to expand 7.4% in the fiscal year ending in March, comfortably exceeding the initial 6.3%–6.8% estimate.

Per the Reuters article, accounting for nearly 60% of GDP, private consumption is projected to expand 7% year on year, easing marginally from 7.2% growth in the previous fiscal year. Government spending is projected to increase 5.2% year on year in 2025/26, accelerating from 2.3% last year, with private investment climbing 7.8%, above the 7.1% growth recorded last year.

Additionally, manufacturing, contributing about 13% of GDP, is forecasted to grow 7% year on year in 2025/26, up from 4.5% a year ago, while construction output is expected to rise 7%, moderating from 9.4% growth in the previous year, according to data.

Per International Monetary Fund projections, as quoted on CNBC, India’s real GDP is anticipated to grow 6.6% in fiscal 2026, moderating to 6.2% in fiscal 2027, assuming a prolonged delay in a U.S.-India trade agreement. Per the CNBC article, the Reserve Bank of India expects the country’s real GDP to expand 7.3% in fiscal 2026, up from its earlier 6.8% estimate, on the back of easing inflationary pressures.

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.

The threat of tariffs and pending government actions adds risk to investing in India ETFs. While these concerns cannot be ignored and may impact short-term performance, they stand in contrast to a more optimistic long-term outlook.

Short-term challenges, such as tariff uncertainties, equity outflows and geopolitical tensions in Asia, could increase short-term market volatility. However, 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 $9.58 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 5.43 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.

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

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