Do not underestimate India’s potential

World’s fastest-growing economy

Gloomy sentiment toward emerging markets (EM) miss where they stand in their reform cycle. The crises of the late 1990s forced many EM countries to fix their finances, setting the stage for booms in the 2000s. The excesses of the 2000s then led to a lacklustre 2010s. Now, forced again to reform by the pandemic, they are set up for another solid run.  

The last EM boom was driven by China’s rapid industrialization phase. But China is now a more mature economy settling into a growth corridor of 3%-4%. This is a slower, more constrained China but not a peaking China. Yet growth in many other emerging markets is booming, extending far beyond China with far deeper participation.

Importantly, India now stands out as the world’s fastest-growing major economy, with favorable demographics (more than half the population is under age 25) and geopolitical tailwinds (one that, on the surface, shares the West’s democratic values). The country is increasingly viewed as an alternative Asian partner to China.

The single most important factor

The single most important factor for India is the upswing in its capital expenditure cycle. Long deficient in critical infrastructure, the investment share of GDP has recently reached 35%, a record high, and among the highest in the world (for comparison, China reached 45% during its blistering industrialization phase). A large share of this investment is being funneled into upgrading India’s shoddy infrastructure – a key reason India has struggled to develop a competitive manufacturing sector. Prime Minister Narendra Modi’s government, under its “Speed And Power” masterplan, aims to build 80,000 km of four-lane highways and 8,000 km of new rail-freight lines, budgeting US$1.4 trillion for connecting different modes of transport.

Investment implications

The above developments for India’s long-term growth outlook should not be underestimated. Increasing infrastructure development will ease India’s transportation bottlenecks, and improving capital stock through investment spending is critical in lifting the country’s productivity and corporate profitability.

This is a similar roadmap that propelled China’s growth over the past several decades. Indian asset prices now have the dual tailwind of a growing domestic investor base (as millions of Indians seek to invest their savings for the first time) and renewed Western interest (looking to diversify away from China and attracted by the diversification opportunities).

Tyler Mordy, CFA, is CEO and CIO of Forstrong Global Asset Management Inc., engaged in top-down strategy, investment policy, and securities selection. This article first appeared in Forstrong’s publication Super Trends 2024 – Macronova. Used with permission. You can reach Tyler by phone at Forstrong Global, toll-free 1-888-419-6715, or by email at tmordy@forstrong.com. Follow Tyler on X at @TylerMordy and @ForstrongGlobal.

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