- Investment Director
United Kingdom, Intermediary
Change
The views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
Numerous positive structural and cyclical factors are pointing towards a major economic upcycle in India over the next five to six years, in our view, creating a range of potential investment opportunities. We believe India’s market is supported by an evolving investment universe, powerful demographic trends, increasing urbanisation and rising wealth, export growth, geopolitical tailwinds and a supportive policy regime. These factors are coalescing at a time when the corporate deleveraging cycle of the last few years is coming to an end and a new upcycle in profitability could be beginning.
1. A shifting investment landscape
The investable landscape in India is in the process of transforming, in our view, with more internet, media and e-commerce businesses likely to come to market over the next two to three years. These industries currently make up less than 1% each of the MSCI India Index, compared to 16% – 18% each in the MSCI China Index (Figure 1).1 We believe the companies starting to list in public markets in these sectors will provide a fertile new investment area for India investors.
Figure 1
2. Favourable demographics
India’s young population is well understood, with a median age of 28, compared to 38 in the US and China, 46 in Germany and 48 in Japan.2 Importantly, India’s working-age population is also rising and is set to see a long, high plateau over the next two decades whereas it has already peaked globally, including in China and Brazil.3 This rising trajectory is promising as the higher working-age population increases labour supply, which is a key input into economic growth.
3. Urbanisation, rising wealth and the improving housing cycle
In the next 15 years, India’s urban population is also set to increase by 125 million people.4 Notably, the average annual household consumer wallet size in India today is expected to increase by 2.4x between 2020 and 2030. Over that time, the share of discretionary spending is projected to rise from 24% to 40%, supporting numerous industries.5 These forces are combining with a decline in interest rates from 8% to 4% over the last decade to drive strong demand for and affordability of urban housing.6 We believe it is likely that this demand strength will persist for years to come, even as domestic rates begin to increase from current lows.
4. Export growth
Economic rebounds in developed markets — particularly the US and Europe — are resulting in strong demand for India’s exports. Export growth today is at the highest level in the last decade, led by strong demand for BPO and software service exports.7 Global digitalisation trends are also long-term structural forces supporting India’s IT outsourcing industry, which has positive flow-on effects for India’s domestic economy through job creation and improving income levels.
5. Geopolitical tailwinds
Ongoing political tensions between the US and China are causing companies across a range of industries to actively seek to diversify their supply chains. India is potentially the key beneficiary of this trend. We believe frictions between the US and China are structural and unlikely to diminish, suggesting this environment could benefit India for years to come.
6. Supportive government actions
India’s 2022 National Budget continued the country’s economic reform trend that includes 2017’s nationwide goods and services tax, 2019’s corporate tax cuts and the 2021 budget’s landmark industry privatisation, investment incentives and tax reforms. It targets a capex-led growth push and emphasises logistics infrastructure, the “Make in India” programme and ESG and digitalisation themes. India’s government plans to spend US$1.5 trillion on national infrastructure over the next five years,8 providing significant opportunities for engineering, construction, building materials and the capital goods value chain.
India’s new corporate profit cycle
In our view, these forces are coming together to drive a new corporate profit cycle in India, which we believe is likely to continue for the next five to six years. We think the timing here could not be better, as it coincides with the end of the deleveraging cycle that that has been playing out since 2015, leaving companies in far stronger financial positions than they were just a few years ago. We believe Indian companies are well positioned to expand their operations into rising demand and generate compelling returns for shareholders for years to come. We see opportunities across a range of sectors including consumer goods, housing, autos, property developers, manufacturing industrials, IT services and financials.
The case for investing in India
So, how much of our bull case is already priced in? India has traded at higher valuation levels than other emerging markets for years and its current valuations are high again following recent outperformance. However, over more than 20 years, the MSCI India Index has outperformed the MSCI EM Index by 2.3% annualised despite these high valuations.9 Notably, today’s profits are at their lowest level in 30 years, contributing to the current optically “high” P/E valuations of the Indian market. If company earnings improve meaningfully over the coming years, as we expect, valuations are likely to normalise. We are optimistic about both the economic and company-level opportunity set available to investors in India today. We believe the combination of structural and cyclical forces are likely to result in a multiyear upcycle, driving improving fundamentals and profitability across a range of industries that are not fully priced in today.
1Source: MSCI India and China industry weights as at 31 January 2022. | 2Source: CIA World Factbook, 2020. | 3Sources: Estimates from UN World Population Prospects, IndiaDataHub, Macquarie Research, November 2021. | 4Sources: UN World Urbanization Prospects, Our World in Data (projections from 2022 to 2050). | 5Source: Data and estimates from Macquarie Capital, “India Consumption and Demographic Tailwinds”, 23 November 2021. | 6Sources: US Federal Reserve, RBI, HDFC, SBI, Propequity, Jefferies. Data from 2001 to 2022. | 7Sources: CEIC, Haver, RBI, Morgan Stanley Research. | 8Sources: India’s Ministry of Finance, Jefferies. | 9Sources: MSCI India Index and MSCI Emerging Markets Index. Data from 1 January 2000 to 28 February 2022.
Expert
Related insights
Showing
of
Insights Posts
Chart in Focus: The need to differentiate market growth from macro growth
Continue reading
3
min
Article
2025-09-30
URL References
Related Insights
Stay up to date with the latest market insights and our point of view.
Read next
Showing
of
Insights Posts
Monthly Asset Allocation Outlook
How to evolve your portfolio for the latest market conditions? Explore the latest monthly snapshot of our Multi-Asset Team’s asset class views.
4
min
Article
2025-10-31
Chart in Focus: The need to differentiate market growth from macro growth
Macro growth and earnings growth have been misaligned for the last 15 years, particularly in the US and China, but in opposite directions. For equity investors, what would be the key to identify real growth?
3
min
Article
2025-09-30
Time to capitalise on the evolving role of bonds?
We outline why we think the new economic era is elevating the role of bonds as a source of attractive and stable income, downside protection and portfolio diversification.
2
min
Article
2025-09-30
Ideas for navigating a new era
Explore our latest views on risks and opportunities across the global capital markets.
Article
2025-06-30
Impact investing in emerging markets: Growing opportunities, shifting challenges
Members of our impact bond team discuss their evolving emerging markets opportunity set and the importance of a bottom-up approach to value creation.
6
min
Article
2025-04-30
Emerging markets debt: resilience in the face of adversity
Our expert discusses why she is positive on the outlook for emerging markets debt, even though growth will likely slow.
Quick Take
2025-01-31
Will a “Goldilocks” economy be just right for equity markets?
We provide an outlook on the ongoing shift to new investment regime, and the market segments that we expect will most heavily influence global equity performance in the coming year.
Article
2024-12-31
What route is right in emerging markets investing?
How can investors find the most compelling opportunities within emerging market equities? Simon Henry and Dáire Dunne explain why they think targeting the economic development opportunity may provide a roadmap for success.
Article
2024-12-31
Beyond China: what does the rest of the EM equity world have to offer?
For investors contemplating a separate allocation to EM ex-China equities, members of our iStrat Team share their research on the composition of the opportunity set, the growing divergence in the behavior of EM ex-China equities and Chinese equities, and the long-term market outlook.
Article
2025-11-30
Why investing in themes for EM equities may reap rewards
Portfolio Manager Dáire Dunne outlines why he is increasingly optimistic about the potential opportunities within select EM equity themes this year.
Article
2024-02-29
URL References
Related Insights