Comment: Will India overtake China as an investment powerhouse?

With India’s performance rivalling that of China, Chetan Sehgal comments on whether India will overtake China as an Asian investment powerhouse.

 
Chetan Sehgal, Lead Portfolio Manager, Templeton Emerging Markets Investment Trust (TEMIT)
 
“India offers investors a significant growth opportunity given its structural tailwinds, which include attractive demographics, a market-oriented economy, and a rising middle class. This opportunity was previously constrained by bottlenecks in infrastructure, bureaucracy, and a weak fiscal position. Over the past decade, infrastructure investment has surged, the ease of doing business has improved, and the government’s fiscal position has been transformed by improved tax collection and the introduction of a national value added tax.

“The Indian rupee is more resilient in the current Fed hiking cycle compared to prior cycles. A resilient currency in combination with increasing domestic demand and supply chain diversification has contributed to increasing manufacturing output and rising foreign direct investment. The services sector is broadening beyond IT consultancy into areas including financial and legal services. From a risk perspective, India’s macro-economy is more robust, inflation has structurally declined, and geopolitics is less fraught due to India’s non-aligned stance.

“Chinese economic growth is slowing due to a higher base (it is the second largest global economy, over five times the size of India), demographic headwinds and geopolitical tensions. But even with a lower rate of growth, China can still continue to grow faster than most developed markets and make an outsized contribution to global growth. Despite top-down concerns, we continue to find bottom-up stock-picking opportunities in China.

“While India will not overtake China in terms of its contribution to global economic growth in the coming decade, we believe India will make a meaningful contribution to growth. The expansion of Indian investment opportunities only serves to improve the breadth and depth of the emerging market investment universe. Despite headwinds, China remains a key driver of global growth and an important source of investment opportunities.”