NewsIndia
Jun 14, 2024 10:43 AM EDT
By 2027, India's economy is expected to overtake both Japan and Germany to become the third biggest in the world. This bodes well for investors as it indicates possible opportunities. India is setting itself apart from both the larger cohort of developing markets and the slower-growing established economies, with an anticipated GDP growth of at least 6% over the next five years.
India's economy, valued at $3.4 trillion, is poised for significant growth, driven by two major factors: favorable youthful demographics and the reconfiguration of global supply chains in a fragmented world. Despite a sluggish global economic environment, India's economy is projected to expand by $400 billion annually over the next few years.
In 2023, India surpassed China to become the world's most populous nation. However, it's not just the size of the population that matters; it's the age distribution. Approximately 65% of India's population is under 35, and half is under 25.
This youthful demographic is a strong asset for economic growth and innovation, providing a larger workforce with the potential for increased productivity and consumer demand. This demographic advantage sets India apart not only from developed markets like the U.S. but also from other emerging markets where labor growth is declining.
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Rising geopolitical tensions have led to the emergence of competing economic blocs, creating new opportunities for countries that can bridge the divide between East and West. India is a significant beneficiary of this trend, particularly through U.S. "friendshoring" initiatives, where firms are relocating supply chains to more politically aligned nations.
India's government has introduced production-linked incentives to attract manufacturers, resulting in $6.5 billion in investment in 2022. This initiative has spurred a wave of investments in technology, energy, and infrastructure sectors. Additionally, the removal of certain tariffs between India and the U.S. in 2023 has further promoted bilateral trade and investment, strengthening economic ties between the two countries.
Investors are increasingly focusing on India within the broader emerging markets (EM) category. In 2023, U.S.-listed India-focused ETFs saw an influx of $4.4 billion. The combination of strong earnings growth and high-quality investments has helped India double its share of the MSCI Emerging Markets ex-China Index over the past six years.
For U.S. investors looking to capitalize on India's growth, several avenues can be explored. One of the simplest ways is through exchange-traded funds (ETFs) focused on Indian equities. These ETFs, such as the iShares MSCI India ETF (INDA) or the WisdomTree India Earnings Fund (EPI), provide diversified exposure to a range of Indian companies across various sectors, offering a convenient and cost-effective means to invest in the Indian market.
Another option is to invest in American Depository Receipts (ADRs) of Indian companies. ADRs are traded on U.S. stock exchanges and represent shares in foreign companies, allowing investors to buy stocks of prominent Indian firms like Infosys (INFY) and Tata Motors (TTM) directly in U.S. dollars. This method simplifies the process of investing in Indian stocks without the complexities of dealing with foreign exchanges and currencies.
For those seeking a more hands-on approach, opening an international brokerage account with firms that offer access to the Indian stock market is another viable option. Brokerages such as Charles Schwab and Fidelity provide platforms where investors can trade Indian stocks directly. This approach requires a deeper understanding of the Indian market and involves more research but can offer greater control and potential for returns tailored to individual investment strategies.
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