Index Insights: The World’s Digital Transformation is ‘Made in India’
August 19, 2021
Read Time 3 MIN
Since the early 1990s India has built one of the world’s most sophisticated information technology outsourcing and consulting sectors, which today is quickly reorienting itself toward digital services and away from legacy IT outsourcing (think of call center operators helping you troubleshoot your Windows operating system). McKinsey estimates that India’s IT industry will grow to $300-$350 billion in annual revenue within five years from $194 billion today, as digital services jump to $170 to $200 billion per year, or 50% of the industry’s revenue, up from 30% now1. Given the demand for digital and emerging technologies like AI and machine learning around the world, McKinsey suggests that India can generate $285 billion in economic value by 2030 by investing just $10 billion annually in modernizing its IT sector2.
How Can Investors Harness this Opportunity?
While many of India’s most promising technology companies are still private, most of the country’s IT consulting firms are public, including some of the country’s largest in any sector. For exposure to the best of these companies, investors should consider the MarketGrader India All-Cap Growth Leaders Index (MGINGROW), which provides a GARP-based stock selection approach.
Since the fund (GLIN) started tracking the index on 5/1/2020, it has held an average weight of around 30% in the Information Technology sector of which I.T. and Data processing services industries represented around 24% of the Information Technology exposure. Since May 1, 2020, to the period ending 7/31/2021, the index returned 79.61% cumulatively of which around 30% of the contribution to positive return came from the following I.T. and Data processing services companies.
Figure 1. Performance of IT and Data Processing Services Industry Companies in MGINGROW
| Ticker | Company Name | Average Weight* | Total Return* | Contribution to Return* |
| INFY | Infosys Limited Sponsored ADR | 5.51 | 151.25 | 7.44 |
| 532281.IN | HCL Technologies Limited | 5.05 | 97.96 | 5.28 |
| 532540.IN | Tata Consultancy Services Limited | 4.91 | 61.57 | 3.36 |
| 507685.IN | Wipro Limited | 4.49 | 211.44 | 6.51 |
| 540005.IN | Larsen & Toubro Infotech Ltd | 1.14 | 204.33 | 1.50 |
| 526299.IN | Mphasis Limited | 1.01 | 270.23 | 1.64 |
| 532819.IN | Mindtree Limited | 0.54 | 222.95 | 0.80 |
| 500408.IN | Tata Elxsi Limited | 0.52 | 229.84 | 1.01 |
| 533179.IN | Persistent Systems Limited | 0.51 | 168.60 | 0.88 |
| 532790.IN | Tanla Platforms Ltd | 0.14 | -3.06 | 0.01 |
| 523704.IN | Mastek Limited | 0.10 | 209.82 | 0.22 |
| 538835.IN | Intellect Design Arena Ltd | 0.09 | 39.66 | 0.03 |
| 543227.IN | Happiest Minds Technologies Ltd. | 0.07 | 42.09 | 0.09 |
| 532370.IN | Ramco Systems Limited | 0.02 | -12.06 | -0.01 |
*Average weight, total return and contribution to return represented 5/1/2020 – 7/31/2021. Source: FactSet.
In the 12 months ended last quarter (March 2021), these 14 companies generated a combined $62.5 billion in sales, up 26% from $49.6 three years earlier. In other words, these 14 companies generated about one-third of all revenue booked by Indian-based IT Services companies based on McKinsey’s estimate of $194 billion for the entire industry. This is remarkable considering that there are more than 3,200 foreign companies operating in the country, many of which source a significant part of their IT personnel in the country.
These 14 companies also reported a combined profit of $11.4 billion in the 12 months ended last quarter, 20% better than the $9.5 billion they had earned in the 12 months ended three years earlier (March 2018).3 Figure 2 shows the one and three-year average sales, operating income, and net income growth rates for the 14 companies on the list through the end of March 2021.
Figure 2. 1 & 3-Year Growth Rates for IT and Data Processing Companies in MGINGROW
Sources: MarketGrader, FactSet.
With 55% of the global market share in the services sourcing business4, India is the world’s number one IT offshoring destination. Emerging technologies such as blockchain, cloud computing, artificial intelligence, and machine learning have given the country—and its technology leaders—an entirely new set of opportunities to accelerate the world’s drive toward a digital economy. Investors looking for a differentiated exposure to this opportunity should look to India.
How to Invest
The VanEck Vectors® India Growth Leaders ETF (GLIN) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MarketGrader India All-Cap Growth Leaders Index (MGINGRNR). The Index consists of consists of fundamentally sound Indian companies that exhibit attractive growth potential at a reasonable price as determined by the index provider.
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Disclosures
1 Source: The Economic Times, https://economictimes.indiatimes.com/tech/technology/mckinsey-says-indian-it-industry-to-touch-300-350-billion-in-five-years/articleshow/81093397.cms?from=mdr
2 Source: McKinsey Global Institute, https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/digital-india-technology-to-transform-a-connected-nation
3 Source: MarketGrader
4 Source: India Brand Equity Foundation, https://www.ibef.org/industry/information-technology-india.aspx
An investment in the Fund may be subject to risks which include, among others, investing in Indian issuers, foreign securities, emerging market issuers, foreign currency, depositary receipts, consumer staples sector, health care sector, financials sector, information technology sector, small- and medium capitalization companies, cash transactions, equity securities, market, high portfolio turnover, operational, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares and concentration risks, all of which may adversely affect the Fund. Foreign and emerging markets investments are subject to risks, which include changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, changes in currency exchange rates, unstable governments, and limited trading capacity which may make these investments volatile in price or difficult to trade. Small- and medium capitalization companies may be subject to elevated risks.
VanEck Vectors India Growth Leaders ETF (GLIN) is not sponsored, endorsed, sold or promoted by MarketGrader.com Corp. (“MarketGrader”). MarketGrader's only relationship to VanEck Associates Corporation (“Licensee”) is the licensing of the MarketGrader India All-Cap Growth Leaders Index (the “Index”) which is determined, composed and calculated by MarketGrader and Solactive AG, as Index Calculation Agent, without regard to Licensee. MarketGrader has no obligation to take the needs of (Licensee) or the owners of the Fund into consideration in determining, composing or calculating the MarketGrader India All-Cap Growth Leaders Index. MARKETGRADER SHALL NOT BE A PARTY TO THE TRANSACTION CONTEMPLATED HEREBY, AND IS NOT PROVIDING ANY ADVICE, RECOMMENDATION, REPRESENTATION OR WARRANTY REGARDING THE ADVISABILITY OF THIS TRANSACTION OR THE FUND OR THE ABILITY OF THE INDEX TO TRACK INVESTMENT PERFORMANCE. MARKETGRADER HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES, EXPRESS, STATUTORY OR IMPLIED, REGARDING THIS TRANSACTION AND ANY USE OF THE INDEX, INCLUDING BUT NOT LIMITED TO ALL IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR USE, AND NON-INFRINGEMENT AND ALL WARRANTIES ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING AND USAGE OF TRADE OR THEIR EQUIVALENTS UNDER THE LAWS OF ANY JURISDICTION. UNDER NO CIRCUMSTANCES AND UNDER NO THEORY OF LAW, TORT, CONTRACT, STRICT LIABILITY OR OTHERWISE, SHALL MARKETGRADER OR ANY OF ITS AFFILIATES BE LIABLE TO ANY PERSON FOR ANY DAMAGES, REGARDLESS OF WHETHER THEY ARE DIRECT, INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF ANY CHARACTER, INCLUDING DAMAGES FOR TRADING LOSSES OR LOST PROFITS, OR FOR ANY CLAIM OR DEMAND BY ANY THIRD PARTY, EVEN IF MARKETGRADER KNEW OR HAD REASON TO KNOW OF THE POSSIBILITY OF SUCH DAMAGES, CLAIM OR DEMAND.
MarketGrader India All-Cap Growth Leaders Index is not sponsored, promoted, sold or supported in any other manner by Solactive AG nor does Solactive AG offer any express or implicit guarantee or assurance either with regard to the results of using MarketGrader India All-Cap Growth Leaders Index and/or its trademark or the Index Price at any time or in any other respect. MarketGrader India All-Cap Growth Leaders Index is calculated and published by Solactive AG. Solactive AG uses its best efforts to ensure that MarketGrader India All-Cap Growth Leaders Index is calculated correctly. Irrespective of its obligations towards MarketGrader, Solactive AG has no obligation to point out errors in MarketGrader India All-Cap Growth Leaders Index to third parties including but not limited to investors and/or financial intermediaries of the financial instrument. Neither publication of MarketGrader India All-Cap Growth Leaders Index by Solactive AG nor the licensing of MarketGrader India All-Cap Growth Leaders Index or its trademark for the purpose of use in connection with the financial instrument constitutes a recommendation by Solactive AG to invest capital in said financial instrument nor does it in any way represent an assurance or opinion of Solactive AG with regard to any investment in this financial instrument.
"MARKETGRADER" and “MarketGrader India All-Cap Growth Leaders Index” are trademarks of MarketGrader.com Corp. and have been licensed for use for certain purposes by Van Eck Associates Corporation. Based on the MarketGrader India All-Cap Growth Leaders Index, is not sponsored, endorsed, sold or promoted by MarketGrader, and MarketGrader makes no representation regarding the advisability of investing in such product(s). VanEck Vectors India Growth Leaders ETF (GLIN).
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com/etfs. Please read the prospectus and summary prospectus carefully before investing.
This content is published in the United States for residents of specified countries. Investors are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this content. Nothing in this content should be considered a solicitation to buy or an offer to sell shares of any investment in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction, nor is it intended as investment, tax, financial, or legal advice. Investors should seek such professional advice for their particular situation and jurisdiction.
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Disclosures
1 Source: The Economic Times, https://economictimes.indiatimes.com/tech/technology/mckinsey-says-indian-it-industry-to-touch-300-350-billion-in-five-years/articleshow/81093397.cms?from=mdr
2 Source: McKinsey Global Institute, https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/digital-india-technology-to-transform-a-connected-nation
3 Source: MarketGrader
4 Source: India Brand Equity Foundation, https://www.ibef.org/industry/information-technology-india.aspx
An investment in the Fund may be subject to risks which include, among others, investing in Indian issuers, foreign securities, emerging market issuers, foreign currency, depositary receipts, consumer staples sector, health care sector, financials sector, information technology sector, small- and medium capitalization companies, cash transactions, equity securities, market, high portfolio turnover, operational, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares and concentration risks, all of which may adversely affect the Fund. Foreign and emerging markets investments are subject to risks, which include changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, changes in currency exchange rates, unstable governments, and limited trading capacity which may make these investments volatile in price or difficult to trade. Small- and medium capitalization companies may be subject to elevated risks.
VanEck Vectors India Growth Leaders ETF (GLIN) is not sponsored, endorsed, sold or promoted by MarketGrader.com Corp. (“MarketGrader”). MarketGrader's only relationship to VanEck Associates Corporation (“Licensee”) is the licensing of the MarketGrader India All-Cap Growth Leaders Index (the “Index”) which is determined, composed and calculated by MarketGrader and Solactive AG, as Index Calculation Agent, without regard to Licensee. MarketGrader has no obligation to take the needs of (Licensee) or the owners of the Fund into consideration in determining, composing or calculating the MarketGrader India All-Cap Growth Leaders Index. MARKETGRADER SHALL NOT BE A PARTY TO THE TRANSACTION CONTEMPLATED HEREBY, AND IS NOT PROVIDING ANY ADVICE, RECOMMENDATION, REPRESENTATION OR WARRANTY REGARDING THE ADVISABILITY OF THIS TRANSACTION OR THE FUND OR THE ABILITY OF THE INDEX TO TRACK INVESTMENT PERFORMANCE. MARKETGRADER HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES, EXPRESS, STATUTORY OR IMPLIED, REGARDING THIS TRANSACTION AND ANY USE OF THE INDEX, INCLUDING BUT NOT LIMITED TO ALL IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR USE, AND NON-INFRINGEMENT AND ALL WARRANTIES ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING AND USAGE OF TRADE OR THEIR EQUIVALENTS UNDER THE LAWS OF ANY JURISDICTION. UNDER NO CIRCUMSTANCES AND UNDER NO THEORY OF LAW, TORT, CONTRACT, STRICT LIABILITY OR OTHERWISE, SHALL MARKETGRADER OR ANY OF ITS AFFILIATES BE LIABLE TO ANY PERSON FOR ANY DAMAGES, REGARDLESS OF WHETHER THEY ARE DIRECT, INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF ANY CHARACTER, INCLUDING DAMAGES FOR TRADING LOSSES OR LOST PROFITS, OR FOR ANY CLAIM OR DEMAND BY ANY THIRD PARTY, EVEN IF MARKETGRADER KNEW OR HAD REASON TO KNOW OF THE POSSIBILITY OF SUCH DAMAGES, CLAIM OR DEMAND.
MarketGrader India All-Cap Growth Leaders Index is not sponsored, promoted, sold or supported in any other manner by Solactive AG nor does Solactive AG offer any express or implicit guarantee or assurance either with regard to the results of using MarketGrader India All-Cap Growth Leaders Index and/or its trademark or the Index Price at any time or in any other respect. MarketGrader India All-Cap Growth Leaders Index is calculated and published by Solactive AG. Solactive AG uses its best efforts to ensure that MarketGrader India All-Cap Growth Leaders Index is calculated correctly. Irrespective of its obligations towards MarketGrader, Solactive AG has no obligation to point out errors in MarketGrader India All-Cap Growth Leaders Index to third parties including but not limited to investors and/or financial intermediaries of the financial instrument. Neither publication of MarketGrader India All-Cap Growth Leaders Index by Solactive AG nor the licensing of MarketGrader India All-Cap Growth Leaders Index or its trademark for the purpose of use in connection with the financial instrument constitutes a recommendation by Solactive AG to invest capital in said financial instrument nor does it in any way represent an assurance or opinion of Solactive AG with regard to any investment in this financial instrument.
"MARKETGRADER" and “MarketGrader India All-Cap Growth Leaders Index” are trademarks of MarketGrader.com Corp. and have been licensed for use for certain purposes by Van Eck Associates Corporation. Based on the MarketGrader India All-Cap Growth Leaders Index, is not sponsored, endorsed, sold or promoted by MarketGrader, and MarketGrader makes no representation regarding the advisability of investing in such product(s). VanEck Vectors India Growth Leaders ETF (GLIN).
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com/etfs. Please read the prospectus and summary prospectus carefully before investing.
This content is published in the United States for residents of specified countries. Investors are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this content. Nothing in this content should be considered a solicitation to buy or an offer to sell shares of any investment in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction, nor is it intended as investment, tax, financial, or legal advice. Investors should seek such professional advice for their particular situation and jurisdiction.