As the fifth-largest economy in the world, and growing faster than any of the G20 economies, India offers an interesting investment opportunity in the Emerging Market (EM) universe.

With a stock market capitalization of $2.45 trillion at the end of 2018, India's stock market is the eighth-biggest globally. Meanwhile, in terms of its market cap as a percentage of GDP, India ranks way below the U.S. and Japan due to the largely informal and SME sectors of its economy. As the economy grows and formalizes, we will see more companies going public, raising that percentage.

Interested in India's stock markets?

There are two major indices in India that consist mainly of large-cap stocks. First, there's the S&P BSE Sensex, which is the primary index of the Bombay Stock Exchange and is a market-cap-weighted index of 30 Indian companies across different sectors. The second one is the NSE Nifty 50 – an index of 50 companies weighted by market cap – in a similar vein to the S&P BSE Sensex.

While the Sensex and Nifty consist of large companies, one may be interested in small-cap and mid-cap indices provided by both BSE and NSE (if the investing focus is on finding the value at the bottom of the pyramid). These indices can act as a set benchmark for your investments and also provides you with a passive investment opportunity in the form of ETFs.

The ETF route

Investors who want to gain passive exposure to the Indian stock market can do so by investing in exchange-traded funds, known as ETFs.

iShares Core S&P BSE Sensex India ETF (SEHK: 2836) trades on the Hong Kong market and provides exposure to the Sensex and its 30 constituents. As of May 7, 2019, the fund had an expense ratio of 0.64% with annual returns of 8.95% over the last five years.

For those wanting slightly broader exposure in India (so Nifty), they can invest in the Hong Kong-listed Xtrackers Nifty 50 Swap UCITS ETF (SEHK: 3015). As of May 7, 2019, the fund had an expense ratio of 0.85% with annual returns of 12.71% over the last five years.

Great long-term story

With its fast-growing economy, improving business environment, and increasing market participation, India will continue to offer interesting investment opportunities for anyone looking for exposure to the emerging market universe.

In my opinion, the key to investing in India is to start passively before carrying out thorough research into Indian companies and only then start adding individual stocks. If so, you can access a small group of the largest and best-known Indian stocks via their American Depository Receipts (ADRs) listed on US exchanges.

A version of article originally appeared on our Fool Asia site. For more coverage like this head over to Fool.hk.en