India’s Structural Growth Opportunity

India's economic evolution over the last decade reflects a transformative journey marked by shifting consumption patterns and expanding production capabilities. India has been the fastest-growing economy in the last 10 years. Its stock market is the fourth biggest in the world and Indian equities have outperformed all peers in the last three years.¹

The country's transition to a bigger and more diversified economy has been fueled by robust demand and supply dynamics spurred by public spending focused on infrastructure development and government reforms that have incentivized industry. The convergence of factors like fiscal spending, reforms, monetary policy adjustments, and digitalization has helped to create a conducive business environment in India, fostering corporate capital expenditure and foreign investments. Multinational corporations have set up plants and relocated global hubs in India. Given India’s demographics, corporates are also locating to India to gain to proximity to a vast and long-term consumer market.

India Plus Zero

Some observers have attributed a large element of India’s recent growth to the challenges of China which have undoubtedly encouraged companies with operations in China to leave and move to more benign business environments. We would argue, however, that India’s increasing appeal to overseas investors is a side effect of its domestic growth agenda rather than a manifestation of overseas China Plus One strategies. While some companies have moved operations to India because of geopolitical concerns in China, for many, India’s internal strengths have been the stronger pulls.

One thing is certain—in our view, India today is a much bigger and more-rounded economy than it has ever been. Public spending and pro-business reforms have together lit a fuse under India’s entrepreneurial culture and are driving a domestic growth agenda. As India charts a course of sustainable growth, investors have the opportunity to benefit by aligning their portfolios with sectors poised for long-term success, such as manufacturing, health care, real estate and financial services.

Sources: ¹Economic growth and stock market size - CLSA as of Feb. 27, 2024; equity performance - Morningstar as of Feb. 29, 2024.