Tapping into India's transformation

Going beyond the cyclical

Mega forces are reshaping India’s economy, driving structural shifts that present both opportunities and challenges. A young and expanding workforce, rapid digitization, and resilience in a fragmented geopolitical landscape bolster India’s long-term growth prospects. We believe these forces support a case for above-benchmark allocations to Indian equities in strategic portfolios with a five-year or longer horizon.

India’s GDP is projected to grow at 6.5% in 2025, well above global and emerging market averages, according to the IMF. We expect structural drivers like demographics and rising productivity to support India’s long-term economic outperformance.

India’s working-age population is set to grow by over 140 million in the next 20 years, while many major economies face declines, according to the United Nations population projections. This demographic dividend provides a foundation for sustained growth, setting India apart globally. Yet unlocking this potential will likely depend on higher female workforce participation and policies that boost skills and job creation, in our view.

We are launching Indian rupee-denominated capital market assumptions (CMAs) to help strategic asset allocations better capture India’s long-term potential, reflecting our view that Indian assets deserve a larger role in global, long-term portfolios.

Bucking the trend
Change in working-age populations, past vs. forecast

India’s structural strengths, in our view, outweigh near-term softness from weak sentiment and U.S. trade uncertainty. Focusing too narrowly on cyclical trends — like slower near-term growth — risks missing the broader structural story and the opportunities it presents, in our view

Recent signs of moderating growth and easing inflation have prompted the Reserve Bank of India to cut interest rates, with further cuts expected to steepen the yield curve. We see Indian government bonds as having attractive income potential, given the higher yields on offer relative to several global peers. Their upcoming inclusion in the JPMorgan GBI-EM index is poised to increase foreign demand, we believe, further supporting this asset class within diversified portfolios.

The MSCI India equity index has lagged broad developed and emerging market indexes since hitting a record high in September 2024, weighed down by slowing growth, valuation concerns and uncertainty over U.S. policy. MSCI India trades at 21.5 times forward earnings, above historical averages, according to LSEG data. We believe robust corporate earnings and lower interest rates can sustain current valuations. India’s exports to the U.S. account for less than 5% of its GDP, limiting its exposure to potential U.S. tariffs compared to more vulnerable economies.

With strong structural drivers in place in our view, we see an opportunity for global investors to increase allocations to large-cap Indian equities directly — rather than through broad indices — to above-benchmark levels.