Is India a Good Investment Alternative?

India is conquering the world and is arguably becoming one of the most promising investment destinations in recent years. India is currently one of the ten fastest growing economies and has recently shown an improvement in its economic indicators, demonstrated by the fact that in just one year it advanced from 77th to 63rd place in the "Doing Business" ranking issued by the World Bank. 

Also, it is expected that by 2024, India will have surpassed China as the country with the largest population in the world, representing a huge potential for domestic consumption. In addition, the average age of its population is 29 years old, making for an excellent demographic quality as the majority of its population is young.

India enjoys a privileged geographical position; its proximity to China allows it to benefit from what will soon be the world's largest economy. It is also very close to the Middle East, a region that can cover all its energy needs. As such, its great location means that India has key suppliers nearby and allows access to low production costs in different sectors.

Let’s dive into the details of seven reasons why you should consider investing in India:

  1.  India is one of the ten most important economies in the world in terms of GDP. The industrial sector represents 24.8% of its GDP, employing 26.1% of the labor force; textile production plays one of the most important roles in the manufacturing sector. The services sector comprises more than half of its GDP, with 59.2% of the total. The rapid growth of the software industry modernizes India's economy, and the country has leveraged its large English-speaking and educated population to become a major exporter of workers in Information Technology services, business services outsourcing, and programming.
  2. Since 2014, India has grown at an average rate of 6%. This accelerated growth has made it the second largest emerging economy

    Despite the fall in 2020 due to the confinement caused by COVID 19, the International Monetary Fund projected a GDP growth of 11.5% for 2021 and 6.8% for 2022. For this reason, economists at Bank of America predicted that, if these high growth rates continue, India will be the third largest economy in the world by 2031, taking the place of Japan.

  3. India is the country with the second largest population in the world. It is expected that by 2024 it will be able to displace China, making it the most populated country on the planet.

    In addition, it has one of the best demographics to drive economic growth worldwide, since 50% of its population is under 25 years old and 65% is under 35 years old. It has a large population of productive age, which makes it advantageously positioned when compared to other emerging countries that also have a young population.

  4. India has several sectors that show great potential for the future. One of them is e-commerce, with domestic and international technology companies fighting for the large number of young consumers and causing the market to grow rapidly.  Another is the real estate market, thanks to the fact that in recent years new laws have been enacted that have structured and legitimized the industry. People are moving to big cities, driving new demand for housing in urban areas and attracting new opportunities for suppliers of inputs used for housing construction. Another growing sector is the consumer market, which has maintained a vigorous growth rate thanks to the huge population growth and the large increase in the urban middle class.

  5. India is considered the key to trade in the region since it dominates the most important maritime routes of the continent through which goods of all kinds move. Its location is considered one of the most privileged in Asia.

  6. The Indian government announced that between 2021 and 2030, US$ 700 billion will be invested for the development of a railway network. In addition, in February 2021, the Ministry of Finance presented the "General Budgets of the Indian State" in which an expansionary policy with an increase in public spending is highlighted.  The National Infrastructure Pipeline was initially launched with 6,835 projects; now, thanks to the increase in its budget, it has 7,400 projects. This infrastructure development will allow a significant increase in the nation's GDP.

  7. India has a deeply rooted and effective democratic system, which ensures a calm and politically stable environment. 

Since 2014, a series of reforms aimed at modernizing the economy have been initiated - facilitating business, eradicating corruption, and improving living standards. According to Doing Business, India has an overall score of 8.0 points on the transaction transparency index, beating even the United States which has a score of 7.4.

So, the question is… how and in which companies should you invest in India?

India has a very large and diverse stock market. Among the country's largest and most important companies that can be a profitable investment are Reliance Industries (oil and gas), HDFC Bank (finance), Infosys (technology), or Tata (industrial conglomerate).

As we have already seen, investing in India is an attractive option. However, buying shares in this country can be difficult. This is why it is recommended to invest with ETF funds. ETFs are vehicles that help to invest in a diversified and low-cost way. They are like a basketball team, composed of key players with different positions. Together, they can diversify their skills to win the game; i.e., an ETF is like a "team" made up of diversified "players" who go after the "goal" of matching their performance to that of an index, such as the S&P BSE Sensex and the Nifty 50.

One of the most popular ETFs in the country is BlackRock's iShares MSCI India, which replicates the performance of an index (BATS: INDA) comprised of Indian equities.

Investing in India is an attractive option – it is one of the largest and most promising emerging economies. Thanks to the high economic growth that has been sustained over several decades, enormous growth expectations are expected in the future. For this reason, India is one of the best positioned markets to capitalize on long-term investment returns.

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Author: Marijose Vazquez