It's not just cricket: Why investors are paying attention to India

As investors are looking to diversify beyond developed markets, among emerging markets, India’s economic trajectory is capturing attention. It has been a story many years in the making, built on a foundation of macroeconomic transformation and long-term structural reform.

The impact of India Stack has flown through to financial services. And this, in turn, is helping the broader economy via income and credit growth. There are more avenues for income generation, especially for people who had not had access to, or indeed, a bank account in the past. Individuals and businesses can access credit more easily, fuelling investment, entrepreneurship, and economic growth.

Since the invention of money, increasing incomes and access to credit has fuelled economic prosperity, from the Romans to the guilds of Florence, the symbiotic relationship between income growth and credit expansion has the potential to drive a virtuous cycle of economic development. We are witnessing this unfold in India.

India Stack’s network effect: scaling up growth

It is not only digital infrastructure that has been driving economic efficiencies. On the physical side, capital investment in roads, railways, and renewable energy is helping facilitate growth in India's economy. These include the national highways expansion and rail projects.

National highways expansion

• The Indian government has undertaken extensive projects to expand the national highway network.

• New highways and expressways are being constructed to reduce travel time and improve connectivity between major cities and economic hubs.

Railroads - high-speed rail projects and dedicated freight corridors

• India is investing in high-speed rail projects, including the ambitious Mumbai-Ahmedabad High-Speed Rail Corridor, which will connect Mumbai (the financial hub of India) with Ahmedabad, the largest city in the state of Gujarat.

• These projects are expected to revolutionize travel by significantly reducing travel time between major cities.

• The development of dedicated freight corridors is also a primary focus to drive the efficiency of freight transportation.

In terms of manufacturing, the Production Linked Incentive (PLI) scheme, launched in 2020, covers 14 industries, with electronics and a parallel semiconductor investment plan accounting for half of the US$40 billion in subsidies over five years.

So far, the scheme has been successful. According to the International Monetary Fund (IMF) India manufacturing value added as a percentage of GDP was 13% in 2022.

The scheme creates the potential for global manufacturers to view India as a viable alternative to China for supply chain diversification. Recently Apple’s Tim Cook said, “The majority of the iPhones bound for the US market in the coming months will be made in India.”

At the same time, pro-business regulatory changes have helped ease the path for foreign direct investment and improved India's global ease of doing business rankings.

Together, these changes reflect more than cyclical strength, they indicate a nation that is more globally competitive, productive and innovative. It represents, for investors, a potential opportunity.

Quality growth amid valuation concerns

While India's equity market has shown impressive performance over the past two decades, some investors express caution over high valuations. This is where being selective is important. We think a Growth at a Reasonable Price (GARP) approach, which targets companies that exhibit strong growth metrics yet are reasonably priced, can help investors navigate the market's potential without overexposure to inflated valuations.

GRIN: A Gateway to India's Growth Leaders

The VanEck India Growth Leaders ETF (GRIN) utilises a GARP strategy, and it offers exposure to fundamentally sound Indian companies. GRIN aims to capture the essence of India's economic momentum while maintaining a disciplined investment approach.

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VanEck India Growth Leaders ETF (GRIN)

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