India’s Economic Boom: Why Investors Should Pay Attention Now

India’s economy is undergoing a major transformation driven by structural shifts that support long-term growth. With GDP projected to grow at 6.5% in 2025, India is set to outperform global and emerging market averages. A key advantage is its expanding workforce, expected to grow by 140 million over the next two decades, while many major economies face declines. However, unlocking this potential will require increased female workforce participation and policies that enhance skills and job creation.

To better capture India’s long-term potential, rupee-denominated capital market assumptions are being introduced. Despite short-term economic concerns, India’s structural strengths remain dominant, with interest rate cuts by the Reserve Bank of India making government bonds more attractive. Additionally, the inclusion of Indian bonds in the JPMorgan GBI-EM index is expected to boost foreign investment. While the MSCI India equity index has lagged recently, strong corporate earnings and lower interest rates can sustain valuations. Moreover, India’s limited exposure to U.S. trade—exports accounting for less than 5% of GDP—reduces its vulnerability to tariffs. Given these strong fundamentals, large-cap Indian equities present a compelling long-term investment opportunity.

India’s Economic Boom: Why Investors Should Pay Attention Now

India is undergoing a structural economic transformation, driven by a growing workforce, rapid digitization, and resilient market dynamics. With GDP projected to grow at 6.5% in 2025, strong corporate earnings, and easing interest rates, India presents a compelling investment opportunity. Investors should consider increasing exposure to large-cap Indian equities for long-term gains.

 

Harnessing India’s Economic Transformation

India’s economy is experiencing significant structural shifts driven by key mega forces, creating both opportunities and challenges. A rapidly expanding and youthful workforce, accelerated technological advancements, and resilience in a fragmented geopolitical landscape are strengthening India’s long-term growth prospects. These factors support the case for an above-benchmark allocation to Indian equities in strategic portfolios with a five-year or longer horizon.

India’s GDP is projected to grow by 6.5% in 2025, surpassing global and emerging market averages, according to the IMF. Structural drivers such as favorable demographics and rising productivity are expected to sustain this economic momentum over the long term. The United Nations predicts that India’s working-age population will increase by over 140 million in the next two decades, while many major economies face workforce declines. However, realizing this demographic advantage will depend on higher female workforce participation and policies that enhance skills and employment opportunities. To better reflect India’s long-term potential, new capital market assumptions (CMAs) denominated in Indian rupees are being introduced, helping investors optimize strategic asset allocations.

Despite concerns such as weaker market sentiment and uncertainty surrounding U.S. trade policies, India’s structural strengths remain dominant. A narrow focus on short-term economic fluctuations could lead to missed investment opportunities. Recent signs of slowing growth and easing inflation have prompted the Reserve Bank of India to lower interest rates, with further cuts expected. This is likely to steepen the yield curve, making Indian government bonds more attractive due to their higher yields compared to several global counterparts. Additionally, the upcoming inclusion of Indian bonds in the JPMorgan GBI-EM index is expected to boost foreign demand, further strengthening their role in diversified investment portfolios.

Since reaching a record high in September 2024, the MSCI India equity index has underperformed broader developed and emerging market indices due to concerns over slowing growth, valuation pressures, and uncertainty over U.S. policies. Currently, MSCI India trades at 21.5 times forward earnings, above historical averages, according to LSEG data. However, strong corporate earnings and lower interest rates could sustain these valuations. Moreover, India’s exports to the U.S. account for less than 5% of its GDP, reducing its exposure to potential U.S. tariffs compared to more vulnerable economies.

With strong structural drivers in place, there is an opportunity for global investors to increase direct exposure to large-cap Indian equities—rather than through broad indices—at above-benchmark levels.