If you’d like to get on board the opportunities in emerging markets -- and especially in the fast-growing BRIC economies of Brazil, Russia, India and China -- I know of country-specific exchange-traded funds (ETFs) that will let you do so. One such ETF, the WisdomTree India Earnings Fund (EPI), allows you to access some of India’s most profitable companies and sectors.

India is the world’s largest democracy, with a population of more than one billion. However, that’s not all it boasts, as it quickly is becoming one of the world’s fastest-growing economies. Since the early 1990s, India has worked to become an open-market economy through the privatization of state-owned businesses, industrial deregulation and easing of control on trade and foreign investment.

Such efforts have encouraged dramatic economic growth. In fact, the country has averaged 7% growth per year since 1997. Last year, India’s economy grew 8% to rebound nicely from a global financial crisis. You can see the sharp increase in economic growth since the 1990s in the chart below.

India’s economy consists of agriculture and farming, as well as an array of modern industries. By far its biggest source of economic growth is services, which accounts for more than half of India’s output. It has become a major exporter of information technology services and software workers through a large educated, English-speaking population.

As of March 8, 2011, EPI had 143 holdings. The top sectors at that time were energy, 23.16%; financials, 20.97%; and information technology, 13.10%. The top ten holdings, also on March 8, were:

EPI seeks investment results that correspond to the price and yield performance, before fees and expenses, of the WisdomTree India Earnings Index. This is a fundamentally weighted index that measures the performance of profitable companies, as of the annual index screening date, that are traded in India and eligible to be purchased by foreign investors. Companies are weighted in the index based on their earnings in their fiscal year prior to the index measurement date. Their weightings are adjusted to take into account shares available to foreign investors. For these purposes, earnings are determined using a company’s net income. Exactly how the fund works may seem a bit complicated, but the end result is that you can invest in India’s stock market by making just one trade through EPI.

The chart below shows the performance of EPI during the last year. You’ll notice that the ETF has really lost steam since its big run-up midway through 2010. EPI now sits below its 50- and 200-day moving averages but it is starting to ascend again.

The biggest concern right now for India is runaway inflation. Industrial expansion, combined with high food prices due to a weak 2009 rain season and inefficiencies in the government's food distribution system, fueled inflation, which peaked in the middle of 2010 at about 11%. After a series of central bank interest rate hikes, inflation has decreased gradually to single-digit percentages. However, investors understandably are reacting as if interest rate hikes will curb growth even further.

Another hurtle for growth in India is a decrease in foreign direct investment (FDI), which fell 31% in 2010. This is in large part due to the high inflation and a series of corruption scams. What also springs to mind when thinking about investing in India is its lack of infrastructure and a huge population stuck in poverty.

The long-term prospects for India’s growth are extremely promising, but emerging markets in general, and India, in particular, are risky. EPI is only for those investors who can handle the risk.

If you’d like particular advice about ETFs, including appropriate stop losses, please sign up for my ETF Trader service. As always, I am glad to answer your questions about ETFs, so do not hesitate to email me at askdoug@dougfabian.com. You may see your question answered in an upcoming ETF Talk.