India’s Economic Rise Demands Investor Attention

India is carving out a unique niche in the global investment landscape and becoming a rising investment destination. Key drivers include:

• Expanding digital sector fueled by increasing smartphone users.
• Government-led initiatives promoting financial inclusion and fintech.
• Young, English-proficient workforce.
• Thriving equity market that has surpassed China’s.

In this blog, we delve into these dynamics, highlighting the emerging trends that make India an investment haven that demands attention.

Investment Opportunities in India's Rising Digital Sector

With over 800 million smartphone users and a rapidly expanding population, India presents a fertile ground for digital sector opportunities. This demographic trend is not confined to urban areas, but is also making significant inroads into rural regions, expanding the digital consumer base. The digital revolution in India, fueled by increasing smartphone penetration and internet access, drives growth across various sectors, including e-commerce, digital payments, and online entertainment.

India’s Digital Revolution Drives Growth in Mobile Usage

Source: TRAI, CLSA, World Economic Forums “Future of Consumption in Fast-Growth Consumer Markets: India” as of 12/31/2023.

According to TRAI, India is projected to have over 800 million smartphone users by 2023. This digital transformation is creating a ripple effect across the economy, opening up new avenues for businesses and investors. For instance, the e-commerce market in India is expected to grow exponentially in the coming years. Similarly, the digital payments sector is projected to reach new heights, driven by growth in mobile payments. These trends underscore the vast potential of India’s digital sector, offering a myriad of opportunities for investors. These opportunities encompass both the digital disruptors, in addition to the companies that are facilitating the disruptions (like traditional I.T. consultancy firms).

India’s Government Pushes for Financial Inclusion and Fintech

The Indian government's initiatives are pivotal in promoting financial inclusion and boosting the fintech sector. The Pradhan Mantri Jan Dhan Yojana (PMJDY), a financial inclusion program, has led to the opening of over 400 million bank accounts as of 2021. Another significant initiative is the Unified Payments Interface (UPI), a real-time payment system that has revolutionized financial transactions in India.

UPI: India’s Public Venmo

Source: National Payments Corporation of India (NPCI) as of 12/31/2023.

The National Payments Corporation of India (NPCI) reports that UPI transactions crossed 2.3 billion in volume and INR 4.3 trillion in value in January 2021, indicating widespread adoption of digital financial services. These government-led initiatives promote financial inclusion and drive the growth of the fintech sector, creating a conducive environment for investment.

Demographic Trends Deliver Competitive Edge to India

India’s demographics make the country well-positioned for unique expansion opportunities, especially compared to China. With a median age of 28 years, India has one of the youngest populations in the world. This young workforce is large and English-proficient, providing a competitive edge over other countries.

India’s Distinct Demographic Advantages vs. China

Source: worldometers.info, lingoda.com, higherlanguage.com as of June 2023.

According to a recent report, India is the second-largest English-speaking country globally, a significant advantage for businesses looking to expand in the region. In contrast, China's population is aging, with the median age expected to reach 48 years by 2050. This demographic comparison underscores the potential that India holds as an investment destination. Combining a young, English-proficient workforce and a rapidly growing consumer base makes India an attractive market for both businesses and investors.

India’s Thriving Equity Market Overtakes China’s

India's equity market has mostly outperformed China's, and India’s trend of higher earnings growth is expected to continue to outpace China significantly. We believe this long-term outperformance is driven by a combination of factors, including economic reforms, strong corporate earnings growth, and positive investor sentiment. However, a disappointing COVID-19 recovery in China on the back of strict lockdowns in addition to geopolitical tensions may be behind India's short-term outperformance.

India has Significantly Outperformed China over the Last 3 Years

Source: Morningstar as of 6/30/23. Past performance is no guarantee of future results.

Across multiple benchmark indexes, including both the MSCI India Index and the IISL Nifty 50 Index, India has delivered significant outperformance versus China benchmark indexes, including the CSI 300 and the MSCI China Index. We believe this robust performance of India's equity market reflects the country's strong economic fundamentals and investors' positive outlook toward India's economic prospects. The expected higher earnings growth further enhances the attractiveness of India's equity market, making it a compelling investment destination, in our view.

India Earnings Outpacing China

Source: Bloomberg as of 6/30/23.

Furthermore, after soaring to extended levels during the COVID-19 pandemic, valuations are finally returning to a more normal range.

Valuations in India within 20-year Historical Range

Source: Bloomberg as of 3/31/2024.

Now Is the Time to Invest in India

India is rapidly transforming into a powerhouse investment hub. Its booming digital sector, combined with a strong equity market, is drawing global attention. Additionally, the government's committed push for financial inclusion and fintech innovation is further fueling this interest. When compared to China, India's demographic advantage amplifies its allure. Simply put, we believe India's strong economic foundations and massive market potential make it an irresistible destination for investments.

Investing in India with VanEck

VanEck India Growth Leaders ETF (GLIN) offers exposure to fundamentally sound Indian companies exhibiting attractive growth at a reasonable price.