Harnessing India's Growth

India is set to become the third-largest global economy by 2027 according to Blackrock, with its nominal GDP projected to hit $7 trillion by 2030. This is accompanied by significant growth in its stock market. The market's capitalisation is expected to double from current levels, potentially reaching $10 trillion, reflecting the country's robust economic trajectory and expanding financial ecosystem. This will put India in the top 3 largest stock markets globally.

This transformative growth trajectory is expected to unfold throughout this decade and likely extend well into the next, solidifying India's position as a key player in global markets.

India’s GDP Projection

Since 1991, India's economic reforms have significantly liberalised its economy, paving the way for modernisation and transforming the nation into a global leader in industries such as technology, pharmaceuticals, and services. With a large, youthful, and ambitious population, coupled with progressive reforms introduced by the Narendra Modi-led BJP government since 2014, the pace of GDP growth has accelerated, particularly following the recovery from the pandemic.

India's economic resilience is evident in its 6.4% average real GDP growth over the past 25 years. Looking ahead, the IMF projects this robust growth to continue throughout the decade, positioning India as a standout performer within the G20 economies. This optimistic outlook is underpinned by ongoing reforms and incentives, the country's expanding role in the global workforce, and the steady rise of urbanisation.

India’s GDP growth superiority over China, EM and DM

The political landscape of India is conducive to growth and wealth creation

India’s economic growth has been driven by both the public and private sectors, which is made possible by a political backdrop that promotes sustainable development.

• The political regime is democratic, which has legal protections, transparency, economic stability, and social investments making it more conducive to higher equity returns.
• The Government of India has undertaken significant economic, regulatory and market reforms since 2014 such as Demonetisation, the implementation of the GST, the application of the Insolvency and Bankruptcy Act, the Real Estate Act, Production-Linked Incentive scheme which has streamlined processes, improved the business environment and provided greater protection for asset owners and as a result, attracted foreign investment (by the likes of Walmart, Google, Facebook, Amazon, Suzuki, Ford, Hyundai, Pfizer etc.).
• Foreign Direct Investment into India has risen from US$36bn in FY2014 to US$71bn in FY2024, with rising foreign ownership permitted.

India’s growth is structural

India's GDP growth stands out not only for its rapid pace but also for its lower variability, underscoring its status as a structural, long-term growth story. This stability is driven by the region's favourable demographics, which fuel rising demand for goods and services, along with India's growing integration into global supply chains. Additionally, India has emerged as the highest-growth region globally, reinforcing its secular growth narrative. The combination of high GDP growth and low volatility is further illustrated below.

Structural growth story = low volatility + high growth

There are few economies that match the region's structural GDP growth and the depth and size of the capital market. Whilst the likes of the Philippines, Indonesia and Egypt are appealing as well, they don’t have the breadth and depth in the market to make a case for a stand-alone investment.

India's robust macro environment

India's current macroeconomic landscape is remarkably robust, demonstrating resilience to both internal and external economic shocks.

India’s macroeconomic picture

India’s macroeconomic conditions have largely improved over the past 10 years.

• Its Forex Reserves are now the fourth largest in the world behind China, Japan and Switzerland. This provides an ample buffer against macroeconomic shocks (e.g. rising oil prices) and allows currency volatility to be managed.
• India’s CAD-to-GDP rose to as high as 5% of GDP when oil prices rose significantly in 2011-2012. The economy was part of the “fragile five”. Today, it looks like India might move into a surplus position given its rising exporting prowess in IT Services, Pharmaceuticals, Specialty Chemicals, Textiles etc.
• Importantly, India’s inflation, cash rate and household debt-to-GDP are not significantly different to where they have been over the last 10 years. Inflation has fallen structurally from above 7% to a range of 4-5%. Mortgage rates are not any higher than in the past – a very different scenario to the Western world.
• Finally, the Modi-led BJP Government has been in place since 2014 and is to be at the helm for another 5-year term, ending in 2029. This has led to policy continuity over the last decade which has brought additional stability.

The best way to gain exposure to India’s growth story

The opportunity to benefit from growth in the most effective manner in our view, is via investment in an actively managed Indian fund or ETF that is able to harness the fastest-growing industries of the future, rather than be focused on the winners of the past.

Source: MSCI, Business Standard

When we inspect the MSCI India index, the top 5 largest sectors are Financials (27%), Consumer Discretionary (13%), IT (12%), Industrials (9%) and Energy (9%). This has little overlap with the fastest-growing sectors – Information Technology, Healthcare, Fast-Moving Consumer Goods (FMCG), Infrastructure and Real Estate.