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DGIN: Question & Answer

February 16, 2022

Read Time 6 MIN

Summary

In this blog, we address frequently asked questions about investing in the digitization of India and specifically the VanEck Digital India ETF (DGIN).



India's economy is rapidly digitizing, potentially creating significant economic value and transforming its capital markets. This blog examines the digitization of India, including key drivers and the potential opportunities it creates, and is intended to answer frequently asked questions on the VanEck Digital India ETF (DGIN).

Q: What is “digitization”?

A: Digitization refers to the conversion from physical data to digital, meaning that every form of data can now be processed and accessed by a computer, mobile device, etc. as long as people have access to these platforms.

Q: Why is digitization in India so important?

A: Digitization is important to India because of the transformation it has brought and will continue to bring to the economy. Virtually everything in India used to be manual—cash transactions, paper documents, etc.—which is generally less efficient compared to digitized forms. New digital ecosystems are already visible and are reshaping consumer-producer interactions in agriculture, healthcare, retail, logistics, among other sectors. In addition to efficiency gains, digitization empowers growth and will continue to facilitate access and connectivity, unlocking significant productivity which creates economic value.

The digital transformation is enabling a better experience for people to access systems, services, data and applications from anywhere, creating a digital workspace. This workspace improves people’s experiences, empowering them to improve efficiencies.

Q: How does digitization create economic value?

A: Consider what the iPhone unleashed back in 2007. Note how the mobile phone space has evolved and how smartphones changed the way we all consume, access and use information. A digital public platform (like the iPhone) creates value by enabling seamless transactions, catalyzing innovation, saving time and costs, connecting people, finding and developing new talent and generating efficiency and transparency for users. India’s mobile penetration is expected to increase to 77% by 2022 as seen below.

India Mobile Penetration to Increase to 77% by 2022

India Mobile Penetration to Increase to 77% by 2022

Source: TRAI, CLSA, World Economic Forums as of 12/31/2020

India is expected to add an estimated 140 million middle-income and 21 million high-income households by 2030, with a vast majority already owning a mobile phone.1 Its people will drive growth and innovation, which could lead to an increase in market cap from $3.5T to over $5T in the coming years, making it the fifth largest market by capitalization.2

Q: What’s driving digitization in India?

A: There are four key drivers of digitization in India: demographics, technology, capital markets and government initiatives.

Demographics3
  • India’s young working-age population drives both income and consumption patterns, and it will continue to remain young, with a median age of 31 years up to 2030, compared to 40 years in the U.S. and 42 years in China.
  • Rising incomes and the expansion of the middle class and high-income segments will reshape future consumption. India’s Millennials and Gen Z are expected to outspend their predecessors.
  • About 370 million Gen Z in India will have grown up with ubiquitous internet, smartphones, digital media and digital consumption platforms by 2030.
Technology4
  • A mobile first economy, more than 80% of India’s internet users primarily access the web through mobile phones.
  • The significant increase in data accessibility due to intense competition in the country’s telecom market is one of the largest contributors to rapid digitization. Extremely low data costs (compared to other countries) make the internet more accessible to a wider portion of the population.
  • Internet users are growing everywhere, but the rural population is what will drive growth going forward. Only 31% of this population can access the internet currently.
  • The majority of transactions now occur online with a big push into UPI (Unified Payments Interface), which accounts for almost 67% of total digital payments volume.
Capital Markets5
  • New IPOs and increased foreign investment in India’s digital economy are reshaping India’s capital markets.
  • The number of “unicorns” has surged in recent years, enabled by the rise of the internet ecosystem, availability of private capital and favorable regulatory environment.
  • The Indian capital market has expanded significantly, and this is expected to continue. India’s market cap could increase from $3.5T to over $5T in the coming years, making it the fifth largest market by capitalization.
Government Initiatives

The government’s Digital India Program launched in July 2015 with a vision to transform India into a digitally empowered society and knowledge economy, focusing on three key areas:

  1. Digital Infrastructure as a Core Utility to Every Citizen: Connecting everyone to high speed internet would facilitate online delivery of different services. The easier people can connect with each other, business, banks and the government, the better and more knowledge they are going to be. Issuing each citizen a unique ID number (Aadhaar) from the Government of India that takes into account a person's biometric and demographic information is a means for secure identification.
  2. Governance and Services on Demand: Providing a single access point for multiple services across departments and jurisdictions helps citizens and businesses save time and effort. The ultimate goal is to make all government services accessible in real time, ensuring efficiency, transparency, and reliability of such services at affordable costs to realize the basic needs of every citizen.
  3. Digital Empowerment of Citizens: Higher connectivity and better communications between people can be provided through mobile phones and computers. The focus is for every citizen to have access to digital literacy, digital resources and collaborative digital platforms.

Q: How does the MVIS Digital India Index track this space?

A: The MVIS Digital India Index tracks the performance of Indian companies involved in the digitization of the Indian economy. Digitization consists of more than just the internet. Companies involved in the digitization includes those with at least 50% of their revenues coming from software, hardware, IT services and consulting, communications equipment, telecommunications infrastructure, internet applications, e-commerce including online financial services, or electronic payment processing. In addition, companies that earn at least 50% revenues from the telecommunications services industry or that rank in the top 10 by annual revenue in the telecommunication services industry are eligible for inclusion.

Telecom companies are considered to be a core digital sector, because they provide communications networks and often are also internet service providers. These activities provide the critical infrastructure upon which all other areas of “digitization” are built. By allowing market share leaders to also be eligible for inclusion, this important group of companies is represented in the Index.

Q: How can investors gain exposure to India’s digitization?

A: VanEck Digital India ETF (DGIN) provides investors with access to local companies across sectors which are enabling and benefiting from the country's digitization, allowing investors to gain exposure to this theme within an emerging markets portfolio. DGIN seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS Digital India Index.

Q: How does DGIN fit within a portfolio?

A: Investors may consider adding a strategic Digital India allocation to their current emerging markets portfolio to achieve the sector exposure that matches their growth appetite.

Digital India Allocations Within an Emerging Markets Portfolio

Digital India Allocations Within an Emerging Markets Portfolio

Digital India Allocations Within an Emerging Markets Portfolio

*Growth is defined as the top 3 sectors by weight of the MSCI ACWI Growth Index as of 12/31/2021 (IT, Consumer Discretionary and Communication Services).

Source: Factset as of 12/31/2021. MSCI EM refers to the MSCI Emerging Markets Index, which captures large and mid-cap representation across 25 emerging market countries and Digital India refers to the MVIS Digital India Index.

Q: Does the index include any exposure caps?

A: Yes, company weightings are capped at 8%.

Q: Can the Index hold ADRs and GDRs, or does it only comprise local Indian companies?

A: The Index includes companies that are domiciled, headquartered or incorporated in India and may include Indian companies not listed in India (ADRs, GDRs).

Q: How often is the portfolio updated?

A: The Index is reconstituted and rebalanced quarterly.

Q: How can investors buy VanEck ETFs?

A: Learn more here.


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DISCLOSURES

1 Source: World Economic Forum “Future of Consumption in Fast-Growth Consumer Markets: India”.

2 Goldman Sachs “India Equites: Digital transformation as private goes public”.

3 Source: World Economic Forum “Future of Consumption in Fast-Growth Consumer Markets: India”.

4 Source: Kantar report “Internet Adoption in India”.

5 Goldman Sachs “India Equites: Digital transformation as private goes public”.

This material is for informational purposes only. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and are subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.

An investment in the Fund may be subject to risks which include, among others, special risk considerations of investing in Indian issuers, equity securities, small- and medium-capitalization companies, communication services and information technology sectors, emerging market issuers, foreign securities, foreign currency, cash transactions, market, operational, index tracking, authorized participant concentration, new fund, absence of prior active market, trading issues, passive management, fund shares trading, premium/discount and liquidity of fund shares, non-diversified and concentration risks.

The MVIS Digital India Index consists of Indian equity securities of companies involved in supporting the digitization of the Indian economy.

MVIS Digital India Index is the exclusive property of MarketVector Indexes GmbH (a wholly owned subsidiary of the Adviser), which has contracted with Solactive AG to maintain and calculate the Index. Solactive AG uses its best efforts to ensure that the Index is calculated correctly. Irrespective of its obligations towards MarketVector Indexes GmbH, Solactive AG has no obligation to point out errors in the Index to third parties. The VanEck Digital India ETF is not sponsored, endorsed, sold or promoted by MarketVector Indexes GmbH and MarketVector Indexes GmbH makes no representation regarding the advisability of investing in the Fund.

Index returns are not Fund returns and do not reflect any management fees or brokerage expenses. Certain indices may take into account withholding taxes. Investors cannot invest directly in the Index. Returns for actual Fund investors may differ from what is shown because of differences in timing, the amount invested and fees and expenses. Index returns assume that dividends have been reinvested.

Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.