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  • Fund watch
  • digital transformation

Can new growth opportunities improve the fortunes of the VanEck Digital India ETF?

The VanEck Digital India ETF has slumped slightly since its inception in early 2022. The fund, which invests in Indian tech players, has suffered in an environment of high inflation and rising interest rates. However, with India targeting growth in the digital infrastructure sector and inflation looking set to slow, the fund could soon see growth.

- The VanEck Digital India ETF has slumped 7.5% in the past year, in an unfavourable investment environment.

- The fund’s top holdings struggle as revenues are put under pressure.

- Analysts remain upbeat with the Indian digital tech sector seeking new growth opportunities.   

The VanEck Digital India ETF [DGIN] offers exposure to companies that are capturing a share in India’s rapidly growing digital infrastructure sector. The fund has grown 2.4% since the beginning of the year but is down 7.5% in the past 12 months. 

Rising inflation and rapid interest hikes have weighed heavily on the technology sector since the fund’s inception in February 2022. Investors consequently moved away from high-growth technology companies; however, in recent months, many have returned to these stocks, as inflation has seemed to be near a peak. 

The fund has 35 holdings as of 8 May, with 60.11% of its total holdings being within India’s information technology (IT) sector, and 17.94% of holdings operating in the country’s communication services. 

India is targeting growth in its IT, software and telecom services, with a focus on cashless and mobile payments. The country already has an established place in ecommerce digital infrastructure and is the world’s eighth-largest ecommerce market, according to data from Statista. 

Top holdings fall amid growth concerns  

The fund’s largest holding, Reliance Industries Ltd [RIGD.IL], makes up 8.26% of total assets as of 5 May. The company operates in several fields including energy, natural gas, mass media and telecommunications.

Shares in the Indian conglomerate have fallen 2.3% since the beginning of the year and are down 11.7% in the past 12 months, with investors worried that growth will sit lower this year. The company reported strong growth in 2022: its energy business received a boost from favourable energy prices following Russia’s invasion of Ukraine, but has suffered due to the Adani Group [ADANIENT.NS] crisis. 

The fund’s second-largest holding, Infosys [INFY], makes up 6.79% of total holdings as of 5 May. The IT company has seen unfavourable share price performance in the last few months, with shares down 15.3% since the beginning of the year and down 21.3% in the past 12 months. 

Infosys, which provides IT, consulting and outsourcing services to several countries, has been suffering from recession fears as well as the US banking crisis, which has forced companies to cut the amount they spend on IT services. For the quarter ending 31 March, the company posted revenues of $4.5bn, which was down 3.2% compared to the previous year, missing analyst expectations. 

Analysts remain positive as India lags behind in AI race 

With a considerable existing position in the world’s technology, communications and outsourcing sector, the next step for India and the VanEck Digital India ETF is to establish a position on the latest artificial intelligence (AI) surge. 

Fund holding Infosys recently announced that it was teaming up with Saudi Aramco [2222.SR] to integrate AI into its human resource technology, with a view to enhancing the employee experience. 

The VanEck Digital India ETF’s largest holdings have relatively strong analyst outlooks. Out of 32 analysts polled by Refinitiv, 16 give top holding Reliance Industries a ‘buy’ rating, 10 believe shares will ‘outperform’, four rate shares a ‘hold’, while the remaining two believe shares will ‘underperform’. 

Out of 43 analysts providing ratings for Infosys shares, 14 give ‘buy’ ratings, 12 ‘outperform’, nine analysts rate shares a ‘hold’, while the remaining eight believe shares will ‘underperform’. 

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