The far-reaching influence of technology on how we live and work has come under an ever-sharper spotlight by investors, as it drives rapid innovation that is reshaping economies and societies.
India stands out as a shining example of this trend. Fuelled by the government, the goal has been to create a conducive environment for business and entrepreneurs. The focus on infrastructure development and initiatives like “Make in India” and “Digital India” have catapulted India to 3rd globally in number of unicorns and startups, after the US and China.
A rapid digital transformation
The growth of India’s tech sector has been striking, with revenue from the country’s tech sector surpassing the US$200 billion mark in FY2022, nearly 16% higher than the previous year1. According to Nasscom, the not-for-profit industry association, the sector should hit US$500 billion by 2030. Evidence of this trajectory includes India jumping 41 places in just seven years to rank 40th on the Global Innovation Index2.
At the crux of this growth is the so-called “IndiaStack”, which stems from “Digital India”. First launched by the government in July 2015, the intent is to create a digitally empowered society. The upshot to date is faster adoption of digital technologies through making services available to citizens electronically, via improved online infrastructure and increasing Internet connectivity.
Reflecting India’s digitalisation successes is the substantial increase in digital payment transactions, from 76% of GDP in FY2023 to 100.4% in FY20243, among the highest in the world.
India’s digitalisation built on IndiaStack4
Capturing new opportunities: HSBC AM’s India Tech ETF strategy
Amid these trends, key for investors is to identify companies that are best positioned to capitalise on the potential. Additionally, diversifying exposure to a range of tech-oriented companies across various sectors is equally important.
The HSBC AM’s India Tech ETF strategy is designed to achieve these objective by capturing the appealing investment opportunities in this space. This strategy is passively managed and tracks the S&P India Tech Index, which leverages Factset’s Revere Business Industry Classifications System (RBICS) methodology to select companies within the “Technology” theme based on their revenue. This approach provides investors with access to a diversified index that focuses on Indian companies deriving more than 80% of their revenue from communications, digital tech and software-related activities.
Illustration: Revenue-Based Selection
Applying the RBICS multi-sector categorisation of global companies enables a more robust framework for financial and economic analysis of tech-oriented companies. This leads to a more comprehensive understanding of a company’s business and risk exposure, while also broadening the eligible universe by considering a wide range of sectors of the index – yet remains consistent with the “technology” theme and maintains the relevant revenue threshold.
By tapping into these key growth themes, investors could participate in India’s exciting tech future and benefit from the immense opportunities it presents.
A diversified index which includes companies within the broader tech theme – Software, Digital Tech and Communication5
Ultimately, by offering this mix of exposure to both traditional and emerging tech sectors, the HSBC India Tech ETF strategy provides investors with access to India’s booming tech future, encompassing industries that may have been overlooked by traditional classification systems.
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HSBC AM’s ETF capabilities
Supported by a network of over 660 investment professionals in more than 20 locations, coupled with 30-plus years’ experience in ETF and indexing management, HSBC Asset Management is set to help investors identify unique investment opportunities via physically replicated ETFs offering cost-efficient access.
[1] Nasscom Report, Technology Sector in India 2023: Strategic Review, March 2023
[2] Press Information Bureau, as of September 2023.
[3] RBI, Morgan Stanley forecasts, as of October 2023. Transactions include IMPS, UPI, PPI and Credit and Debit card POS.
[4] MitonOptimal Gorup, Details/Information is provided for illustration purposes only.
[5] Source: HSBC Asset Management, S&P Dow Jones Indices as at February 2024. For a detailed list of eligible business activities and the RBICS classification system, please refer to the S&P Thematic Indices Methodology. Chart and data are for Illustrative purposes only.
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