India's Investment Appeal: Why Investors Are Attracted

India has emerged as one of the fastest-growing economies in the world, offering a thriving environment for both domestic and foreign investment. India's economy and policies, coupled with its technological advancements, make it an attractive prospect for investors. The country's large working-age population and increasing wealth are driving domestic demand, and its democratic government has implemented a range of pro-growth reforms to support economic growth. India's equity market is large and deep, with a long-established equity culture, and its markets are highly liquid. The country's diverse range of sectors, from pharmaceuticals to IT services, provide plenty of opportunities for investors.

India's economy is growing fast

The country's real GDP growth rate has averaged 6-7% annually over the past 20 years, outpacing many developed and emerging markets. This trend is expected to continue, driven by several factors.

One key factor is the country's large, young population. India has the largest youth population in the world, with an estimated 360 million consumers below the age of 30 by 2030. This growing, working-age population is a demographic advantage, making India more attractive to domestic and foreign companies.

The country's digital infrastructure is also being expanded and adapted to meet the needs of these younger, more urban consumers. India already accounts for 43% of digital real-time payments worldwide.

The Indian government has also implemented numerous pro-growth policies and reforms, such as bankruptcy code reform, corporate tax cuts, and reduced caps on foreign ownership in major sectors. These measures have improved the ease of doing business and boosted economic growth.

Additionally, increased tax collection has allowed for investment in high-speed rail, subways, and port-to-railway connections, further driving economic development.

Another factor contributing to India's economic growth is its focus on STEM education. 34% of Indian graduates are in STEM fields, a higher proportion than in many other countries, including the US and France. This has led to a highly skilled workforce, generating employment opportunities and driving innovation in traditional parts of the Indian economy.

The country's equity market is also large and deep, with a total market capitalisation exceeding 4.3 trillion USD as of December 2023, making it the fifth-largest worldwide.

India's diverse and democratic political system provides a stable environment for investors, with a steady current of reforms and progress.

All these factors contribute to India's fast-growing economy, making it an attractive destination for investors seeking strong returns and long-term growth opportunities.

The country has a large, young, skilled workforce

India has the largest youth population in the world, with an estimated 360 million consumers below the age of 30 by 2030. This presents a large, young, and skilled workforce that is attractive to investors.

India's population is expected to increase from 121.1 Cr to 152.2 Cr between 2011 and 2036, a 25.7% increase in 25 years. This will maintain India's status as one of the youngest countries in the world until 2030.

The country also has the third-largest group of scientists and technicians globally. The focus on STEM subjects in India's education system has resulted in 34% of graduates in these fields, a higher proportion than in countries like France and the US. This has led to a highly skilled workforce, generating employment opportunities and the potential for wealth creation.

Additionally, India's digital infrastructure is expanding to meet the needs of its younger, more urban consumers. 43% of digital real-time payments worldwide are already taking place in India, and the country ranks fourth globally in tech venture capital investments, recording US$24.1 billion in 2022.

The large, young, and skilled workforce in India, combined with its expanding digital capabilities, makes it an attractive destination for investors seeking long-term growth opportunities.

India's domestic consumption is huge

India's domestic consumption is led by its private sector, which has played a significant role in the country's growth. The country has an estimated middle class of 400 million people, who are the primary drivers of consumption expenditure. This emerging middle class, along with increasing disposable incomes, are the largest factors behind the increasing domestic consumption in India. It is estimated that the private consumer market in India will increase fourfold by 2025.

The current government is also focusing on rural areas and farmers, as rural India is emerging as a new market for all types of consumer goods. India's huge domestic consumption is further fuelled by its expanding, working-age population, which is projected to grow while other countries' working-age populations stagnate or shrink. This demographic advantage makes India more attractive to domestic and foreign companies.

People are also becoming wealthier, driving domestic demand. India's GDP per capita is USD 2,257, and if the economy grows at 6% per annum, it will take India roughly 30 years to reach the standards of living currently seen in China. This presents a lucrative long-term opportunity for investors.

The country's universal biometric digital ID system, Aadhaar, has enrolled 99% of the population. This system allows anyone in the country to access education, healthcare, welfare subsidies, e-commerce, financial services, and more, with far less slippage. India's digitalization is a real differentiator, and it is inclusive, free, and does not require a specific app.

The Indian equity market is also supported by the development of a local equity culture. Investing in mutual funds has become a key part of financial planning for millions of Indians. In 2023, domestic investors invested 22 billion USD into Indian equity markets, marking the second-highest annual inflow after hitting a record high of 36 billion USD in 2022. This was the third consecutive year that domestic investor inflows surpassed foreign investor flows.

The government has implemented business-friendly policies

The Securities and Exchange Board of India (SEBI) has announced disclosure norms for foreign portfolio investors (FPIs) that will improve transparency and reduce risks. The Reserve Bank of India (RBI) has also taken several actions to increase foreign exchange inflows, such as exempting additional Foreign Currency Non-Resident (Bank) [FCNR(B)] and Non-Resident (External) Rupee (NRE) deposits from cash reserve requirements.

The government has launched policies that significantly simplify the ease of doing business, as evidenced by India's jump in the World Bank's Doing Business report from rank 142 in 2015 to rank 63 in 2020. The National Monetization Pipeline (NMP) was launched in 2021 to provide a comprehensive view of investment avenues in infrastructure. The National Logistics Policy (NLP) aims to decrease logistics costs and bring them to par with other developed nations.

The Foreign Investment Facilitation Portal (FIFP) is a new online interface for investors to facilitate Foreign Direct Investment (FDI) proposals. The government has implemented an investor-friendly strategy, with most sectors open to 100% FDI under the automatic route. The FDI policy is frequently revised to keep India an attractive destination for investors. The government has also liberalized FDI in the defence sector, allowing up to 74% through the automatic route and 100% through the government route.

The Indian government has also focused on rural areas and farmers, as rural India is emerging as a market for consumer goods. The present administration has propagated an investor-friendly FDI policy, with most sectors open to 100% FDI. The government continuously reviews the FDI policy to ensure India remains an attractive investment destination.

India's equity market is large and deep

India's equity market is large, deep, and becoming increasingly popular. The Bombay Stock Exchange (BSE) in Mumbai, the country's largest exchange, was founded in 1875 and is Asia's oldest. When combined with the National Stock Exchange of India (NSE) and other local exchanges, the Indian equity market boasts a total market capitalisation of over 4.3 trillion USD (as of December 31, 2023), making it the fifth-largest worldwide and the second-largest among emerging markets, after China.

The market capitalisation of Indian equities is equivalent to 70% of the Japanese market capitalisation and 63% of the combined market capitalisation of the exchanges within Euronext. In the context of emerging markets, India accounts for approximately 16.3% of the total market cap of MSCI Emerging Markets, a proportion that has steadily grown over the past decade.

The Indian equity market is supported by the development of a local equity culture. Investing in mutual funds has become a key part of financial planning for millions of Indians. In 2023, domestic investors (DIIs) invested 22 billion USD into Indian equity markets, marking the second-highest annual inflow after hitting a record high of 36 billion USD in 2022. This was the third consecutive year of DII inflows surpassing foreign investor (FII) flows.

The Indian equity market is not only large but also highly liquid. Over 170 stocks listed on Indian exchanges have a market capitalisation of over 5 billion USD (the fourth-highest figure worldwide). They have a high level of daily turnover, with over 250 stocks averaging a daily turnover of more than 10 million USD—a figure surpassed only by the Japanese, US, and Chinese equity markets.

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