The $3.4 trillion Indian economy has a lot going for it.4 India is benefitting from multiple mega forces in the form of (1) favorable youthful demographics and (2) rewiring global supply chains amid a fragmenting world. India also stands out amidst a tepid global growth backdrop: its economy is expected to grow by $400 billion per year for the next few years.5
Favorable demographics drive growing output
India overtook China as the most populous nation in 2023.6 But not only does it have a large population, it has a young one, too. Approximately 65% of its population is below the age of 35, and half is below the age of 25.7
A youthful population can be advantageous for a country's economic growth and innovation as it typically represents a larger workforce with the potential for higher productivity and increased consumer demand. This demographic pattern in India stands in contrast to developed markets (DM), including the U.S. Even among emerging markets (EM), labor growth is turning downward.8
Geopolitical fragmentation creates supply chain opportunities
Rising geopolitical tensions around the world have ushered in a new era of competing economic blocs. As a result, countries that are able to partner across east and west could expand their influence. India is a clear beneficiary of U.S. friendshoring trend, as firms have increasingly moved supply chains there.
India’s government introduced production-linked incentives to encourage manufacturers to establish operations there. This initiative drew $6.5 billion in investment in 2022 and has been one cause of a surge of investment in tech, energy and infrastructure.9Additionally, the removal of certain tariffs in 2023 between India and the U.S. has further incentivized bilateral trade and investment, fostering closer economic ties between the two nations.10
Investors are getting more granular within EM
Indian equities have been in demand as investors reconsider their EM allocations.
Investors added $4.4 billion into U.S.-listed India focused ETFs in 2023.11 A combination of earnings growth and quality has helped India double its share of the MSCI Emerging Markets ex-China Index over the past six years.12