India’s Growth Story and How to Invest in it

While developed markets remain attractive investment destinations, their long reign as growth engines might be nearing its peak. This shift presents a compelling opportunity for investors to explore emerging markets brimming with untapped potential.

Once synonymous primarily with agriculture, call centers and IT services, India has transformed into a vibrant nation celebrated for its young population, thriving economy, and more recently – ambitious space exploration programs. These hallmarks solidify India's position as a rising star and a powerful magnet for international investors seeking new frontiers.

In this blog, we'll dive deeper into India’s growth catalysts and share insights for tapping into this promising market with ETFs.

Why Invest in India?

India's economy is being hailed for its rapid growth, averaging 7% in GDP growth over the past decade to reach $3.6 trillion[1]. This surge has propelled India from the eighth to the fifth largest economy globally.

Investment bank Jefferies estimates that India's GDP will reach $5 trillion within the next four years[2], potentially making it the third-largest economy, surpassing Japan and Germany.

This growth is attributed to several factors, including demographic advantages, increased infrastructure spending, improvements in institutional strength, and enhanced governance.

India has young, dynamic population and an expanding middle class

In April 2023, India surpassed China to become the world's most populous nation with 1.43 billion people, edging out China's 1.42 billion. This shift underscores India's youthful demographic advantage: over 40% of its population is under 25[3], representing one in every five young people globally, and positioning it as a potential workforce and consumer growth powerhouse.

India's middle class has been expanding at an annual rate of 6.3% since 1995, now making up 31% of the population with projections to reach 60% by 2047 [4]. This burgeoning middle class, coupled with a growing workforce expected to increase by over a third by 2050, underscores the country's economic potential.

As global investors shift focus from an aging China, India's combination of a dynamic young population, competitive wages, and a stable consumption sector—which accounts for over 50% of its GDP growth[5]—boosts its appeal.

Record infrastructure spending to modernize the nation

The Indian government's ambitious infrastructure investments are a cornerstone of its growth strategy, with a record allocation of 11.11 trillion rupees ($134 billion) for 2024/25[6].

This investment, nearly 4.5 times higher than its 2014-15 level, is aimed at strengthening India's infrastructure—including railways, bridges, airports, and energy sectors—to support its expanding economy.

After achieving nearly 100% electrification of its villages in 2018, India has also made a global commitment to reach net-zero emissions by 2070 and to produce half of its electricity from renewable sources by 2030[7].

This ambitious effort to combat climate change will require an estimated investment of around $160 billion annually through 2030, according to the IEA, which further creates investment opportunities in the country.

On the digital front, the "Digital India" campaign launched by the government in 2015 is transforming the nation into a digitally empowered society and a knowledge-based economy, significantly enhancing digital infrastructure and connectivity through initiatives like DigiLocker, UMANG, Aadhaar, and PMGDisha.

India's fintech sector is experiencing explosive growth, projected to reach $150 billion by 2025, a massive leap from $50 billion in 2021[8]. This surge is driven by the successful integration of technology and finance, enhancing access to financial services, and fostering innovation. According to Invest India, this positions India among the world's fastest-growing fintech markets.

However, a significant challenge remains. Studies show that over 150 million adults in India are still unbanked[9]. Major strides in the fintech industry are working to tackle this issue. Advances in digital finance are empowering millions in both the formal and vast informal economy to make and receive payments and transfer funds more easily.

Becoming the go-to manufacturing hub?

India's rise as a global manufacturing leader is driven by a confluence of strategic advantages, a shifting geopolitical landscape, and a surge in both government and private investment. Strategic tax reductions, attractive incentives, and significant infrastructure enhancements are creating fertile ground for international corporations.

This has already attracted industry giants like Apple, Samsung, Kia, and Airbus, who are either expanding their existing operations or looking to establish a stronger foothold in India. As global supply chains face disruptions and tensions with China rise, India is emerging as a reliable alternative for manufacturers seeking stability.

Prime Minister Narendra Modi's administration is further fueling optimism by investing heavily in infrastructure and fostering dialogue with Silicon Valley leaders like Tim Cook, Jensen Huang, and Elon Musk.

This focus on infrastructure development, coupled with streamlined business reforms, is making it easier for companies to set up shop, secure approvals, access office space in industrial parks, and obtain dedicated power supplies. Local companies are also seizing the opportunity, ramping up investments to tap into the burgeoning domestic market. These combined efforts are propelling India's transformation into a vital manufacturing hub.

Buoyed by robust growth in its manufacturing sector, India's appeal as a destination for diversifying supply chains is gaining significant momentum. According to the latest HSBC India Manufacturing PMI data, the sector witnessed its fastest expansion in 16 years during March[10], driven by improvements in operational conditions.

India is expanding its trade and building its international relations

India has been making notable progress in striking free trade deals with Western countries. In addition to agreements with Australia and the United Arab Emirates, it has worked to better integrate the “Global South’s” development needs and ambitions with that of the G20. Modi has touted innovative partnerships for a new multilateral rail and sea corridor to connect India with the Middle East and the European Union (EU)—seen as a counterweight to China’s vast Belt-and-Road infrastructure corridor.

India reached its latest notable trade pact, nearly 16 years in the making, in March with the European Free Trade Association—Iceland, Liechtenstein, Norway and Switzerland. The agreement lifts Indian tariffs to secure US$100 billion in foreign direct investment commitments from the non-EU markets to India across multiple sectors.

This dynamic growth, coupled with comprehensive economic reforms, has significantly boosted foreign direct investment (FDI), reaching a record $84.8 billion in the 2021-2022 period. With a strategic vision to increase annual FDI to $100 billion[11], the government is leveraging India's solid economic foundations and progressive policies to attract further global investment.

India sees booming stock market and global bond market inclusion

The ongoing economic growth has translated into impressive market returns, as illustrated by India's stock market's stellar performance. For the five-year period ending March 29th, 2024, the FTSE India Index has returned nearly 82% (in USD) compared to a drop of nearly 27% for the FTSE China Index[12].

The local flagship NIFTY 50 index has surged by 26%[13] over the last year, elevating India above Hong Kong to become the world's fourth-largest equity market. Future projections from Jefferies estimate its valuation could reach $10 trillion by 2030[14], underscoring the strong confidence in India's economic future.

In September last year, JPMorgan Chase & Co. announced the addition of Indian government bonds to its benchmark emerging-market index, starting June 2024, marking India's inaugural inclusion in a global bond index. Following suit in March 2024, Bloomberg Index Services announced a similar move, adding Indian government bonds to its Emerging Market Local Currency Government Index from January 31st, 2025.

Analysts suggest that these inclusions may bring billions of dollars into India's rupee-denominated government debt, boosting demand and reducing bond yields, thereby fortifying the local currency.

The Impact of Upcoming Elections

On April 19th, India began the world's largest electoral process, with nearly a billion eligible voters participating. The country is home to over 2,700 political parties[15], yet only 10 control a significant majority of the seats (~86%) in the Lok Sabha, India's lower house of parliament.

The electoral battle is expected to be primarily contested by a few significant parties, with Prime Minister Modi and his Bharatiya Janata Party (BJP) at the forefront. Modi is not only immensely popular in India; his approval ratings also exceed those of any other leader from the world's major democracies.

A victory in this election would likely empower Modi to further his pro-business initiatives, supporting India's ascent higher up the global rankings.

How to Invest in India with ETFs

Investing in India's promising future offers an enticing prospect for long-term investors. For European investors seeking exposure to the Indian equity market, there are 11 Exchange-Traded Funds (ETFs) available[16], offered by prominent industry players like iShares, Amundi, Franklin Templeton, and Xtrackers, among others. Given the long-term nature of the Indian opportunity, it's crucial to consider fees, as they can significantly impact returns over time.

Franklin Templeton offers an appealing and cost-effective way to invest in the Indian stock market with their Franklin FTSE India UCITS ETF (FLXI), featuring a low expense ratio of just 0.19%. FLXI focuses on large and mid-capitalization stocks in India, tracking the performance of the FTSE India 30/18 Capped Index.

In terms of sector allocation, financials hold the largest share at 23%, followed by consumer discretionary (12%), energy (11%), information technology (11%), and materials (10%). The fund boasts a well-diversified portfolio with 229 holdings as of April 25th, 2024.

Notably, the top 10 holdings collectively represent 33% of the total fund allocations, featuring prominent names such as Reliance Industries Ltd, HDFC Bank Limited, Infosys Ltd, Tata Consultancy Services Ltd, and Bharti Airtel Ltd.

The fund is accessible across various exchanges, including Deutsche Borse Xetra (FLXI; EUR), Euronext Amsterdam Exchange (FLXI; EUR), the London Stock Exchange (FLXI, USD or FRIN, GBP), Borsa Italiana (FLXI, USD), and SIX Swiss Exchange (FLXI, USD). This availability enhances the fund's liquidity and convenience for investors.

Since its inception on June 25, 2019, the fund has delivered an impressive return of 71% (based on NAV price, as of April 30th, 2024). In the past year alone, it has achieved a remarkable return of 35%.

[1] IMF

[2] The Economic Times India

[3] United Nations

[4] People Research on India’s Consumer Economy, July 2023.

[5] Reserve Bank of India

[6] Reserve Bank of India

[7] IEA

[8] Invest India

[9] The World Bank

[10] PMI S&P Global, HSBC

[11] Reserve Bank of India, S&P Global 2023.

[12] Franklin Templeton, March 2024.

[13] Investing.com

[14] The Economic Times India

[15] Statista

[16] Trackinsight.com

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.