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Is India the next global growth powerhouse?

Episode Description

India has recently become the world's most populous country overtaking China and is projected to become the world's third largest global economy by 2027.

Gargi Pal Chaudhuri, Chief Investment and portfolio strategists for the Americas at BlackRock and Tara Iyer, Chief US macro strategist for the BlackRock Investment Institute join host Oscar Pulido to uncover the various factors that are driving India's growth and what hurdles may yet lie ahead for investors.

Sources: “Mapping India's growth story to mega forces”, BlackRock Investment Institute, January 2024; “Insight on India, the world’s fastest-growing major economy”, iShares market insights April 2024; IMF World Economic Outlook, Jan. 2024; BlackRock, Morningstar as of 12/31/2023; National Stock Exchange of India, BSE as of Dec. 31, 2023

Written Disclosures

This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener.

For full disclosures go to




Oscar Pulido: Welcome to The Bid, where we break down what's happening in the markets and explore the forces changing the economy and finance. I'm Oscar Pulido.

India is a nation that's not just on the cusp of an economic transformation. I. One that is also redefining the global economic order. It has recently become the world's most populous country overtaking China and is projected to become the world's third largest global economy by 2027, there's a number of factors that are helping India cruise its way to the number three spot, including a demographic advantage, geopolitical realignment, and a digital revolution.

 As we turn our gaze eastward, we'll ask what is driving India's growth and what hurdles may yet lie ahead.

I'm pleased to welcome Gargi Pal Chaudhuri, Chief Investment and portfolio strategist for the Americas at BlackRock. And Tara Iyer, Chief U.S. macro strategist for the BlackRock Investment Institute.

Gargi and Tara will share their insights on India's economic strategies, equity inflows, and what global investors need to consider when looking to take advantage of investment opportunities.

Gargi and Tara, welcome to The. Bid,

Tara Iyer: Great to be here.

Gargi Chaudhuri: Thanks for having me, Oscar.

Oscar Pulido: Gargi, I'd love to start with you. We're going to talk about India and the rapid growth that it is experiencing. In fact, the growth rate in India for many years was faster than pretty much every emerging market except China. Although in recent years, India's growth rate has now surpassed that of China. So, talk to us a little bit about what are the factors driving this growth and what challenges does it present?

Gargi Chaudhuri: This is so exciting for me to be here to talk about India because as many of you can tell from the accent, it is where I'm from, and to come to talk about it in an investment context is such an honor.

So, the IMF forecast for India is to have a growth of about 6.8% in 2024, and about 6.5% in 2025. the world GDP is about three and a quarter percent, the emerging market, GDP in that same period is about 4.2%.

What's really exciting to many of us is that over the next five years, India is going to or is expected to be the third largest economy. And, if it grows at its current pace, it's going to double the, $3.5trillion GDP that it's currently at by 2030. But I think we have to look a little bit harder and understand why all this is happening.

I think about it in sort of five dimensions. The first is demographics. Not only is India the most populous country, but what's important is about 65% of that population is below the age of 35, and about half of that population is below the age of 25. So, it's a young population, it's a population that is, going to enter the workforce and be really productive in the years to come. And that is very different from how many of the developed markets look.

The other one that I focus on a lot is infrastructure and the huge amount of investment that's going into infrastructure in the next few years. There's about 35 kilometers of roads that are going to be built per day between now and March 2025. So that's about a little more than 18 miles for those of you who are not, so familiar in kilometer terms. You won't have to spend as much time in traffic if infrastructure's great - which growing up in India was certainly one of the things that I didn't love! There's a huge amount of pro industrial policy, huge amount of government spending.

Then, one of the things that I'm sure Tara's going to talk about is around friend-shoring, the impact of supply chains moving away from other countries to India when we look at the export as a percentage of GDP in India, you've already seen that come through in the export number.

And then lastly, central banks across many EMS are cutting rates. But in India as well, the RBI, which is the Reserve Bank of India, is expected to begin their cutting cycle Again, another aid to growth and to consumption.

Oscar Pulido: You've laid out a really interesting macro landscape that we can delve into a bit more. And I think you said the economy will double in size by 2030?

Gargi Chaudhuri: Yes.

Oscar Pulido: If it continues to grow at current rates, which I think is an interesting visual just to quantify the speed at which it's growing. You also mentioned that India is now the world's most populous nation. So, Tara, I think that happened pretty recently. And so how does this demographic advantage for India factor into their economic strategies?

Tara Iyer: As Gargi mentioned, India's population is very youthful. Why is this important? Because the demographic divergence in India is so different from that in advanced, some advanced economies, populations are shrinking in countries or slowing in the United States, in Japan, in China and many countries in Europe.

And the demographic divergence across countries really creates these shifts in the economic and financial landscape. So, from an economic perspective, if there are fewer workers in the economy, it can limit how much economies can produce, and this limits their growth rate. It also has inflationary consequences, and that depends on the dynamics of demand and supply.

Older populations, it has been shown in the data, they consume services, but they also demand more healthcare and social expenditure. But on the other hand, labor supply shrinks in countries with these, adverse demographics and compared to countries with more of a demographic advantage.

And all those being equal, the shifting balance between demand and supply can lead to inflationary pressures. This can pressure the fiscal situation in countries with a more unfavorable demographic dividend than others, because it means lower tax revenues from workers, and it can pressure public finances because governments have to spend more on healthcare and other social costs.

In terms of India's economic strategies, it should be able to take advantage of its youthful population by upskilling them and increasing the productive capacity and really driving growth by investing in its young population.

Another thing that India is trying to do in terms of programs is increasing women's labor force participation. India's labor force participation of women right now is relatively low compared to many economies. And increasing labor supply of younger women in the workforce will allow it to further harness its demographic dividend and spur future growth.

Oscar Pulido: So, it's clear that the younger population of India is a tailwind to growth. it's a larger working age population and it puts less constraints on fiscal policy relative to developed markets. Another trend that I'd love to get your thoughts on when we talk about India is digitalization and specifically how it impacts the financial sector. So, can you talk a little bit about how this is also another tailwind for growth?

Tara Iyer: When you go to India, you see everyday transactions such as shopping for groceries, to paying bills, to making cross-border transactions, things that were done a decade ago in a more inefficient manner, these are done digitally nowadays. And one key reason why digitalization has taken such a stronghold in economies, because of the rise of the unified payments interface, or the UPI for short.

It started 7-8 years ago, and the UPI has been successful, in part because 75% of India's 1.4 billion population holds a mobile phone. 90% of India has a unique id. Less than 50% of the population had a unique ID just a decade ago. So, the UPI scheme has been successful in terms of streamlining payments.

Digitalization has several economic implications. I think the first is that it really allows the underserved population in rural communities in India to enter the financial system. And one, key stat that I think is very interesting is that 85% of the population in India is now financially included, and this is, this compares to 20%, just a decade ago.

UPI can also be used across generations. it's used by the tech savvy young, and it's used by older people alike - it really transcends, generations. There's my grandma, uses digital payments nowadays to pay her taxes. and she's very happy because she doesn't have to travel, she's 87.

So, the UPI paves the way for a consumer credit boom in India. This consumer credit boom is one of the key reasons why we think the consumer sector can provide interesting investment opportunities in India. And generally, I think their investment opportunities rise and following the trends of increased financial inclusion and how the UPI is able to reach underserved communities in different parts of the consumer segment alike.

Oscar Pulido: And I've heard UPI mentioned now a couple of times, and you mentioned the financial inclusion going from 20% of the population 10 years ago to now, 85% of the population. It sounds like it's more pervasive in terms of how it impacts people's lives. So, the good news is you've both laid out some really positive, forces that back the India story. this is not news though, to a lot of investors. In fact, we've seen flows into India, equities being quite strong.

Gargi maybe to come back to you, valuations in India, as I understand, are a bit higher reflecting this enthusiasm. How do you look at the investment opportunity in India relative to other emerging markets or just relative to stock markets in general?

Gargi Chaudhuri: I'll go back to the first point that you made around flows. there have been about $7 billion of inflows of the last 12 months, which is just U.S. investors that are using ETFs that are linked to the country of India and getting that exposure. And this is pretty rare when we think about that single country exposure to other countries. $7 billion is a pretty high number because the next largest number in that single country space is about $3 billion.

But to your second point, there obviously has been over the last five years reflection of this incredible story of digitization, of infrastructure, of, demographic dividends that has played out in the market.

So, if you think back to pre-Covid, from five years ago to now, what the Indian equity markets have done, it's up about a hundred percent in that five-year timeframe. Which is in line with what the U.S. market has done. But then if you look at the broad EM indices, obviously India is an EM country so you can compare it with broad EM indices, which are up a fraction of that, about 20% approximately in that same timeframe. So, there has been a valuation story that has taken place.

Now, what drives valuations of a bond, a stock, a country, a sector etc? A big part of that is expectations of earnings growth, and part of that expectations of earnings growth comes from the underlying growth of the economy.

So, this 8% growth that we have seen, the approximately 6% growth that we expect to see, all of that is also going to manifest its way into earnings growth. And that's what's been priced in the market. And I would say that investors have only just begun to pay attention to that, especially US investors, as well as domestic demand has only just begun in that way. And we think despite these valuations that have certainly moved, most US investors still don't have India in their portfolio in the size that they should. I think those are tailwinds that are yet to materialize over the medium term.

The last thing that I think is really important and maybe not understood as much is what you get as an investor when you invest in India versus many other EM countries. So, when you invest in India, because of the way in which the Indian stock market is set up, if you allocate to India, you are actually getting a much more diversified basket than you would if you allocate it to other single country EMs. You're getting that diversification built in as opposed to many other EM countries where you might just get metals and minings or you might just get financials. So that diversification is a big reason that many investors are choosing to allocate to India.

And then I'll also say from a portfolio construction standpoint, adding Indian equities also have that growth, the momentum, important qualities that are really important when growth is scarce. So having that growth momentum qualities in the Indian equity markets is really important. And we think, investors across the globe will continue to gravitate that way.

Oscar Pulido: And your point on sector diversification is a good one. We take for granted if you live in a developed market. So, Tara coming back to you, another theme that we talk about when we discuss India is geopolitics. And specifically, in what is a more geopolitically fragmented world, India has taken a multi-aligned approach to different superpowers around the world. Talk more about that and specifically how it impacts the economic policies then that it pursues.

Tara Iyer: We live in an increasingly geopolitically fragmented world. Trade barriers have tripled since the beginning of the financial crisis. They've increased in new record highs in certain commodity markets. Global trade has plateaued since the financial crisis and global FDI - foreign direct investments - has plummeted, geopolitical risks are a key market concern, and among certain surveys, they're written among the top market concerns at this point.

Some key geopolitical trends that we are monitoring in this fragmenting world are increased tensions between certain superpowers, we are navigating an increased technology competition. We are seeing increased tensions in the Middle East, and more scope for emerging market political crises.

In terms of the increased technology competition, there's greater competition over the use of artificial intelligence. We've seen the boom of that quantum computing, semiconductors and usage of military technology. India is relatively well positioned to take advantage of some of the diversions that we are seeing in the world.

It's taking fewer sides, compared to many other economies. It's more of a multi-aligned state, such as many other emerging market economies, and it's really positioned itself, for example as a country that wants to secure affordable energy for its masses. And some of its alignments are based on that.

India's become a leader in digital payments and has positioned itself as a country that's willing to share knowledge with some other countries, including those in Africa and some other countries is pursuing selective alignments with, in terms of sharing digital knowledge.

Oscar Pulido: And so, Gargi, coming back to you, you talked about the flows into Indian equities, and you said something about the part of the portfolio that maybe it's not as well owned as it could be. So how should investors think about this as part of a portfolio?

Gargi Chaudhuri: I love this question because it's my privilege and honor to help investors navigate two economies, which are going to be additive to their portfolios in the next few years.

And if I think back to the past how investors, especially, US investors and certainly, same of international investors as well would get exposure to countries such as India or other emerging market economies, would be through a broad EM index and over the last five years, I would say post pandemic, certainly with the rapid growth of India stock market opportunities, India right now is about 18% of the index and that's doubled over the last five years where it was 9% of the index. even if you went via that broad exposure, you would certainly get a fair exposure to India and that's wonderful.

More recently, we've seen a lot of investors move to a benchmark that is EM excluding China. And if that is an exposure that you choose to have, again, you have a larger exposure to, India in that basket more and more. As I mentioned earlier, we've seen about 7 billion of inflows into single countries, in single country India exposure. More and more what we are finding is that investors are choosing specific countries instead of that broad EM exposure because investors are recognizing that not all EM countries can be painted with the same brush.

I'd also say that investors, when thinking about India can think about much like they do in the rest of the world. Think about large cap, mid cap, small cap, so getting exposure to those really big companies and you have indexes that do that. And then you have some of the indices that give you access to the smaller cap markets and.

I'll also say that's something that's very exciting that's going on in the Indian market right now is the inclusion of Indian government bonds. In broad EM markets. So that's something that has been taking place and we'll get to that max, 10% or so allocation over the course of the next year or so the max allocation's about 10%, and I think that's another massive opportunity for investors not just to have access to the Indian equity markets, which is what we've been talking about, but now over the course of time also have access to Indian bond markets. And then finally, the private markets as a way of getting access to private opportunities in India.

Oscar Pulido: So, Gargi you always are very enthusiastic about this topic and, for that matter, every topic that, you come and talk to us about. But I know part of that is probably because you were just in India last month. So, tell us what did you see while you were on the ground?

Gargi Chaudhuri: So, I was home last month, visiting my parents. I tried to go home to India, to Calcutta, India about two to three times a year. This time in particular, it was amazing to see in Calcutta the impact of the infrastructure to actually see it with my own eyes. what was most exciting for me was the underground subways and the coverage, which the underground subways or the metros have that connect the suburbs to the cities. you won't waste as much time sitting in traffic because you are connected underground. And that to me is so exciting from just a productivity standpoint.

Oscar Pulido: A great little anecdote of, infrastructure, the benefits of good transportation, which I think we all, appreciate as we make our way around different cities. But it certainly sounds like India has a productive road ahead. And I want to thank Gargi, both you and Tara for joining us on the. Bid.

Gargi Chaudhuri: Thank you for having us.

Tara Iyer: Thank you for having an Oscar

Oscar Pulido: Thanks for listening to this episode of the bid. If you've enjoyed this episode, leave us a review and consider sharing this with a friend and subscribe to the bid wherever you get your podcasts.


This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener.

For full disclosures go to


Is India the next global growth powerhouse?

Gargi Pal Chaudhuri, Chief Investment and portfolio strategists for the Americas at BlackRock and Tara Iyer, Chief US macro strategist for the BlackRock Investment Institute, join host Oscar Pulido to uncover the various factors that are driving India's growth and what hurdles may yet lie ahead for investors.

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