Should You Buy the Dip in India ETFs Amid Pakistan Tensions?

India’s stock market experienced sharp declines this week as geopolitical tensions between the country and Pakistan intensified. The Nifty 50 index fell below the 24,000 mark, while the BSE Sensex plummeted over 1,000 points, reflecting investor concerns over the escalating conflict.

The downturn follows a series of military actions between the two nations. India initiated "Operation Sindoor" on May 7, targeting alleged terrorist infrastructure in Pakistan and Pakistan-administered Kashmir. In retaliation, Pakistan launched drone and missile strikes across several cities in India, which were intercepted by India's S-400 missile defense system. The escalating conflict has prompted a sell-off in India equities.

In such a scenario, ETFs targeting the nation are also seeing rough trading. iShares MSCI India ETF INDA, WisdomTree India Earnings Fund EPI, Invesco India ETF PIN, iShares India 50 ETF INDY and VanEck Digital India ETF DGIN dropped in the range of 4-5% each in the past couple of days (read: Explore India ETFs In Light of Geopolitics & Growth).

Below, we profile these ETFs in detail and discuss some of the specifics behind their recent slump:

iShares MSCI India ETF (INDA)

iShares MSCI India ETF offers exposure to large and mid-cap companies in India by tracking the MSCI India Index and charging 62 bps in fees per year from investors. Holding 157 stocks in its basket, the fund has key holdings in financials with a 29.6% share, closely followed by a 12.7% allocation to consumer discretionary. iShares MSCI India ETF is the largest and the most popular ETF in this space, with AUM of $9 billion and an average trading volume of 9 million shares a day. It has a Zacks ETF Rank #3 (Hold).

WisdomTree India Earnings Fund (EPI)

WisdomTree India Earnings Fund seeks to provide investors exposure to profitable companies in India’s equity market by tracking the WisdomTree India Earnings Index. It holds 410 securities in its basket, with key holdings in financials, energy, materials, and information technology. WisdomTree India Earnings Fund has AUM of $3.1 billion and charges 87 bps in fees per year. It trades in an average daily volume of 1 million shares and has a Zacks ETF Rank #3.

Invesco India ETF (PIN)

Invesco India ETF tracks the FTSE India Quality And Yield Select Index, holding 214 stocks in its basket. The fund is widely diversified across sectors, with financials, information technology, consumer discretionary and materials taking a double-digit allocation each. Invesco India ETF has accumulated $228.3 million in its asset base while trading in an average daily volume of 58,000 shares. It charges 78 bps in annual fees and has a Zacks ETF Rank #3.

iShares India 50 ETF (INDY)

iShares India 50 ETF provides exposure to the largest 50 Indian stocks by tracking the Nifty 50 Index. It is concentrated on the financial sector with a 37.6% share. Information technology, consumer discretionary and energy round off the next three spots with double-digit exposure each. iShares India 50 ETF manages assets worth $694.7 million and trades in a good volume of nearly 163,000 million shares a day. It is a high-cost choice in the space, charging 89 bps in annual fees and has a Zacks ETF Rank #3 (read: 5 Country ETFs Up At Least 20% in Q1 2025).

VanEck Digital India ETF (DGIN)

VanEck Digital India ETF offers exposure to companies involved in supporting the digitization of India’s economy. It follows the MVIS Digital India Index and holds 49 stocks in its basket. VanEck Digital India ETF has AUM of $25.6 million and trades in an average daily volume of 4,000 shares. It charges 74 bps in annual fees and has a Zacks ETF Rank #3.

What Lies Ahead?

Though heightened tensions between India and Pakistan have led to significant market volatility, the long-term outlook remains strong for India.

India has been showing resilience and sustained growth momentum amid global uncertainties. The International Monetary Fund (IMF) predicts that India will overtake Japan to become the fourth-largest economy in 2025, fueled by private consumption, particularly in rural areas.

India's GDP is projected to reach approximately $4.3 trillion by 2025, edging past Japan’s estimated $4.2 trillion. Robust domestic demand, a young, growing population, rapid digitization and infrastructure investment and resilience in manufacturing and services exports are the key drivers behind the growth. The “Make in India” initiative and supply chain shifts away from China make India’s manufacturing increasingly attractive.

The IMF also projects India to achieve its ambition of becoming a $5 trillion economy by 2027. The agency cites sustained government reforms, increased FDI inflows, and a focus on self-reliance in key industries as contributing factors to India’s rising stature.

According to some analysts, India presents compelling growth opportunities for investors willing to navigate some geopolitical risk. Relative to other emerging markets, India offers stronger domestic growth potential and could benefit from the tariff regime under the Trump administration, which targets China more than other countries, in the long term.

Further, lower oil prices are benefiting India the most as it is the world’s third-largest importer of crude oil, accounting for two-thirds of its crude oil requirements (read: Oil Slumps to Below $60: ETFs to Gain).

Given bearish near-term sentiments, investors may want to consider staying on the sidelines for the time being. However, risk-tolerant long-term investors may want to consider this recent slump a buying opportunity, should they have the patience for extreme volatility.
 

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

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