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What is the outlook for the Nifty Fifty?

Should you invest in India?

CAPE TOWN – Over the last year India’s CNX Nifty Index has returned close to 30%. Also known as the Nifty Fifty, the index tracks the performance of the 50 largest stocks on the National Stock Exchange of India.

Fund managers have bought Indian stocks on both the CNX and the Bombay Stock Exchange worth more than $16.5 billion this year. That is the biggest inflow into any emerging market.

These funds have lifted the market capitalisation of the CNX to the 11th largest in the world, at around $1.55 trillion. Some analysts are now predicting that continued growth on the market could soon see it overtake Germany’s Deutsche Borse, currently worth $1.69 trillion.

The appeal of Indian stocks is a reflection of the country’s emergence as one of the most important economies in the world. It now boasts the tenth largest GDP on the globe, and is closing in on both Italy and Russia.

Many analysts are predicting the strong performance from Indian stocks to carry on into 2015 and 2016. Much of that has to do with continued optimism following the election of Narendra Modi as Prime Minister this year and his willingness to continue reforms that benefit local companies.

Investors looking to benefit from some of this growth can do so through the iShares India 50 ETF. The fund tracks the CNX Fifty and can be traded through the Standard Bank WebTrader platform.

The portfolio offers a diversified exposure to the Indian market, although banks dominate the fund with a weighting of 23.39%. Computers – software at 14.55% and Cigarettes at 7.70% are the second and third largest sector weightings.

The 7.70% held in the cigarettes sector is entirely in a single stock – ITC – which is the single largest holding in the portfolio. Other counters in the top five are ICICI Bank, software company Infosys, Housing Development Finance Corp., and diversified manufacturer Reliance Industrials.

Despite India’s prospects, however, investors should be aware that the fund presents a fairly challenging price-to-earnings ratio of around 20 times. Its dividend yield is also a fairly pedestrian 0.87%.

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