India's stock market surges, attracting investors as China faces economic challenges
India has transformed into a lucrative investment target in recent years, boasting upgraded infrastructure and a business-friendly attitude. Although initially a small portion of asset allocators' portfolios, India's appeal has shown signs of expansion.
“Our clients are excited about India,” said HK Gupta, portfolio manager at Sustainable Growth Advisers.
“China is slowing. It’s less attractive.”
China's economy and stock market are experiencing a downturn due to multiple factors: pandemic lockdowns, rising debt, an aging population, and uncompromising foreign policies. The country's once double-digit growth rates have slowed to mid-single-digit figures, with stock prices remaining stagnant.
On the other hand, India is on the rise, with a burgeoning stock market ranking as the world's fourth most valuable, surpassing the United Kingdom. The country's GDP growth rate is projected to outpace China's over the next decade, with the International Monetary Fund foreseeing significant growth for India.
The emergence of India as a technology hub and successful moon rover launch has further contributed to its investment appeal. With a population of 1.4 billion, India's young median age of 29 sets it apart globally.
“They have a young, dynamic population in India,” said Cameron Brandt, director of research at EPFR.
“India has all the ingredients for investors.”
Fertile ground for foreign investors
Investors have found fertile ground in India's stock market. Its iShares MSCI Emerging Markets counterpart has outperformed others over five and ten years. Foreign direct investment into India has surged, reaching its highest level ever in 2022 and projected to increase further in 2023.
Canadian and American pension funds have taken notice, investing billions in the Indian economy.
“We are encouraged by the environment created to attract foreign direct investment,” said John Graham, Canada Pension Plan Investment Board (CPPIB) CEO, as quoted in Chief Investment Officer.
CPPIB, with assets totaling $432 billion, expanded its presence in Asia with the opening of an investment office in Mumbai, India. In an interview with an in-house publication, Sujeet Govindaraju, head of CPPIB's India office, revealed that CPPIB has invested $21 billion in the Indian economy, representing 4.8% of its portfolio.
CPPIB also holds a stake of $2.4 billion in India's Kotak Mahindra Bank and has engaged in numerous real estate ventures, often through collaborations with Indian partners. Additionally, CPPIB has committed $205 million to support the growth of IndoSpace, a developer of warehouse and industrial parks.
“We are interested in the Indian economy whose breadth is encouraging,” Graham said.
Tech investments in India
Tech stands out as a favorite investment choice in India, with the government's digitization efforts, technology-focused education, and skilled workforce attracting investors.
“India has leveraged the internet to create a plethora of digital public goods and government services,” said an E&Y study.
“This has allowed India to connect numerous citizens and provide a more democratic and an inclusive digital network.”
Early-stage venture capital offers opportunities to access India's tech scene, though challenges in liquidity and intellectual property protection should be considered, said Kia Ghorashi, managing director of Makena Capital Management.
India's growing financial sector and infrastructure investments also present appealing opportunities for foreign investors. With a young population driving GDP growth, India's economic potential looks promising. A Goldman Sachs study projects India to become the world's second-largest economy by 2070, ahead of the United States.
