The ASX exchange-traded fund (ETF) Betashares India Quality ETF (ASX: IIND) has seen its unit price fall quite heavily.
Since 20 December 2024, the IIND ETF has declined by 12%, hitting a 52-week low of $10.81 on Monday. That's a sizeable decline over a relatively short time period for a portfolio investment.
This fund aims to track the performance of an index of a diversified portfolio of the highest-quality Indian companies.
This ASX ETF tracks an index of the 30 highest-quality Indian companies based on a few different quality characteristics.
When share prices of great businesses fall, I become interested because I think the underlying value of those companies will rise over time. Any sizeable (temporary) dip in share prices is an opportunity, in my opinion.
So, beyond the decline of the valuation, there are a few reasons to like this ASX ETF. Here's why I'm a fan.
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High profitability for ASX ETF
The first thing that an Indian business needs to have to enter this portfolio is high profitability.
Making profit is obviously what being in business is all about, so these Indian giants are doing well.
These are some of the most successful businesses in India, and they're making large profits. BetaShares says India's economy is one of the fastest-growing in the world, with future potential growth underpinned by "strong structural fundamentals". I'd point to things like India's huge population (of well over 1 billion), which is seeing digitalisation and a growing middle class.
Some of the businesses in the portfolio include Infosys, ICICI Bank, Kotak Mahindra Bank, Tata Consultancy Services, HDFC Bank, Axis Bank, Hindustan Unilever, Mahindra & Mahindra, and Nestle India.
As these businesses generate and retain some of their profit, they can invest that money into delivering more growth in future years.
Low leverage
Another factor that businesses need to have to make it into this portfolio is low leverage. That means that they have a limited amount of debt on their balance sheet compared to their size.
The higher interest rate environment means businesses with high levels of debt have suffered, and businesses with strong cash levels have benefited from interest income.
Having good balance sheets allows businesses to easily ride through a recession and perhaps even allows them to acquire beaten-up competitors.
The businesses in this ASX ETF's portfolio are seemingly some of the most financially resilient in India.
High earnings stability
It's not ideal to see a business' profit fall heavily because this could lead to significant declines in the company's share price.
As an ASX ETF, the fund's returns are essentially dictated by the performance of the underlying holdings. So, having earnings regularly go backwards would be a painful headwind for the IIND ETF if it didn't have this financial rule of earning stability in place.
By only investing in businesses that have very stable profits, it suggests to me the profits should regularly grow rather than decline. That may help deliver solid, longer-term returns. Following the decline of the IIND ETF unit price, I think this is a good time to invest.
