QNB Suisse, and Singapore-based asset manager ZyFin, have unveiled Europe’s first exchange-traded fund to offer exposure to India’s real consumption ‘story’. The QNB ZyFin India Consumption UCITS ETF (LON: ZICU)/(Xetra: QNEI) tracks the equities performance of firms are well placed to benefit from the on-going expansion being seen in domestic Indian consumption.

The QNB ZyFin India Consumption UCITS ETF (LON: ZICU) is the first European-listed ETF to provide direct access to Indian consumption-related equities.

Sanjay Sachdev, Executive Chairman at ZyFin, commented: “The launch of QNB ZyFin India Consumption UCITS ETF is the most important step in ZyFin’s continued efforts to offer global investors attractive and cost-effective products while providing easier access to fast-growing emerging markets.”

Underlying the ETF is the ZyFin India Consumption Index, a US dollar-denominated thematic index which uses a rules-based proprietary methodology to select liquid equities from the Zyfin Investable Universe which are part of consumer specific sectors, as defined by the index committee. According to Zyfin, consumption-related equities constitute approximately 35% of the parent universe, in terms of market capitalization.

The methodology allows for the selection of a total of 30 stocks from the appropriate sectors, choosing those with the highest consumption-driven revenue exposure. Stocks are weighted by free-float market capitalization.

At the time of portfolio design, index constituent weights are capped at 4% and sector weights at 20% to promote diversification. The index is reconstituted and rebalanced on an annual basis.

The index has significant exposure to consumer-driven industries such as automobiles (26.8%), healthcare (25.0%), materials (13.9%), food & beverages (12.8%), and household & personal products (12.2%), as at 10 February 2017.

Using back-tested data, the index is up 11.5% per annum over the past five years. This compares favourably to the 3.9% and 8.7% per annum returns on the Nifty 50 Index and the Nifty Consumption Index respectively. The index’s performance, denominated in US dollars and Indian rupees, is graphed below.

Source: Zyfin Research.

Approximately 60% of Indian GDP is consumption-related, the highest proportion of all major emerging market countries, making the economy relatively resilient to global shocks. Despite the large proportion of consumption-driven economic activity in the country, consumer stocks presently account for only 25% of the overall equity market in India. With the IMF forecasting India to be the fastest growing major economy over the next two years, Zyfin argues this disparity supports the argument for fundamentally-driven price appreciation in the ETF.

According to the fund sponsor, rising personal income levels, wider access to credit, and the ‘demographic dividend’ (accelerated economic growth attributable to an increase in the proportion of working-age individuals to dependents), will also contribute to driving growth in the fund’s targeted sectors.

Ajay Kumar, Assistant General Manager at QNB Group, commented: “This new ETF provides a unique opportunity for global investors to be a part of the remarkable and on-going economic growth which India has enjoyed, in recent years. We expect these strong levels of growth to continue as the country’s vast population drives heightened consumer demand.”

“India’s consumption story is at an inflection point, with a rising middle  class  and  exponential  growth  in  disposable  incomes,” added Sachdev. “As evolving demographics continue to favour a substantial increase in consumption volumes, the case for investment in India becomes even more compelling.”

The ETF has a total expense ratio of 0.99%.