3 Reasons Why Investors Should Look Towards India as a Long-Term Opportunity

Earlier this year, India’s Prime Minister Narendra Modi mingled with a group of school children aboard the first Vande Bharat Express train allotted to the Indian state of Kerala. As he toured the modern, well-appointed cars of the semi-high-speed train ahead of its Kerala flag-off ceremony, PM Modi listened attentively to students sing and recite poetry, praising their talents and engaging in conversations that the children will certainly never forget. The PM later waved the green flag as the train and its student passengers rolled out of the station.

The optimistic scene highlighted the incredible pace of change unfolding in the emerging market country, supported by a government with a smart, ambitious growth plan and the pool of talent and resources to execute it.

The combination of India’s burgeoning digital infrastructure, improving physical infrastructure, and growth-oriented economic policies is reflected in the success of the Vande Bharat Express project. The indigenously manufactured train made its inaugural run in 2019 between Delhi and Varanasi, showcasing India’s advanced technology and manufacturing capabilities. It continues to expand its service to places like Kerala, improving the connectivity between Indian cities and regions.

These positive trends in India’s economy have yet to be fully appreciated by equity investors, and sentiment has lagged the country’s healthy GDP growth. But investors should pay attention to the drivers of India’s social and economic gains. Here are three reasons why India provides some of the most compelling long-term growth opportunities in emerging markets.

1. An Advanced Digital Infrastructure

India's rapid progress in digital infrastructure has been driven by several factors, including the proliferation of affordable smartphones, the availability of high-speed internet, and an internet user base that is among the world's largest and fastest growing.

Among the myriad of digital tailwinds helping the country, perhaps the most transformative development has been the democratization of financial services. This trend began with the Aadhaar (the world’s largest biometric ID system) and the Jan Dhan program, which facilitated the opening of bank accounts for Indian citizens who previously lacked access to basic financial services. Hundreds of millions of accounts have been opened since the Jan Dhan program’s inception in 2015, and over 80% of the population now has access to bank accounts.

The broad access to savings vehicles and credit, aided by the Unified Payments Interface (UPI), has catalyzed the growth of e-commerce, digital payments, and various tech-driven sectors. Initiatives like Digital India and BharatNet are driving the expansion of digital services to previously underserved regions. As India's digital ecosystem has matured, it has unlocked new opportunities for tech startups and enhanced the efficiency and reach of established businesses across sectors.

2. A Renewed Physical Infrastructure

India’s inter-city connectiveness has long relied on trains, and the success of the Vande Bharat Express has led to the addition of more rail corridors, allowing better connections between small towns, manufacturing hubs, and cities.

India's commitment to revamping its physical infrastructure has gone beyond railways. The government's ambitious initiatives like the Bharatmala Project and the Sagarmala Program are modernizing roads, ports, and airports, reducing logistical bottlenecks, and fostering seamless movement of goods and people. Improved infrastructure reduces operational costs for businesses and promotes balanced regional development, unlocking the economic potential of previously marginalized areas. This concerted effort towards infrastructure development creates a conducive environment for businesses to thrive and attract foreign investments.

3. The Government’s Commitment to Economic Growth

The government’s recent push for self-reliance through initiatives like "Make in India" and "Atmanirbhar Bharat" underscores the commitment to bolster domestic industries and reduce dependency on imports. The Vande Bharat Express project demonstrated how these efforts can bolster the Indian economy now and in the future.

The government's commitment to economic reforms is evidenced by initiatives like the Goods and Services Tax, which has streamlined India’s tax structure, and the Insolvency and Bankruptcy Code, which consolidated bankruptcy law. The emphasis on ease of doing business, coupled with incentives for foreign investors, signals a welcoming environment for capital inflow. Strategic sectors like manufacturing, renewable energy, and healthcare are being incentivized, presenting ample investment avenues.

The government’s business-friendly policies have made India the preferred trade partner for companies pursuing a “China Plus One” strategy, a trend that has seen companies choose to broaden their operations outside of China in order to lower risks and costs. India has engaged its trade partners to seek new free trade agreements and has added support to its semiconductor industry, where geopolitical roadblocks have restricted semiconductor trade with China. These efforts have led to more foreign investment. In September, Nvidia, the leading manufacturer of artificial intelligence semiconductors, announced plans to partner with Indian conglomerates Reliance Industries and Tata Group in an effort to establish AI computing and cloud infrastructure capabilities.

Maintaining a Long-Term Perspective

As with any emerging market, India does not come without its share of risks. Fluctuations in regulatory policies, geopolitical uncertainties, and market volatility are all factors that should be considered carefully by investors. It’s also important to keep in mind that economic growth does not always lead to strong equity returns in the short term, particularly in emerging markets. However, the confluence of a robust digital infrastructure, transformative physical infrastructure projects, and progressive economic policies give India an economic edge. For investors looking for opportunities for outsized capital gains in the long term, it may be time to get on board.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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