Investment Adventures in Emerging Markets


India—prepared for takeoff

In addition to increasing demand for air travel due to a rapidly growing population, other positive trends are setting the stage for India’s economy and markets to take off. Franklin Templeton’s Head of Global Index Portfolio Management, Dina Ting, discusses the country’s supportive government programs as well as its market’s strong financial, IT and energy sectors.

By now, most people have heard the demographic prediction that India has already—or is about to—become the world’s most populous nation. Its growth is eclipsing China’s, which has been the world’s largest country since at least 1950 when the United Nations began population recordkeeping.

But population growth is not the only thing taking off in India. A growing middle class means more robust travel demand, and the South Asian nation’s booming airline business and aviation market is now one of the fastest growing in the world. Analysts expect related government spending to reach nearly US$12 billion by 2025 to boost regional connectivity, with plans to modernize existing facilities as well as build 80 new airports over the coming five years.

In June this year, Tata-owned Air India, which is already the country’s largest international carrier, confirmed a landmark commercial jet order of 470 Boeing and Airbus passenger airplanes. (The country’s IndiGo discount airline competes with it for domestic market share.)

When US President Joe Biden hosted Indian Prime Minister Narendra Modi for a rare state visit to Washington that same month, he praised the US$46 billion Boeing order as “historic,” noting it was Boeing’s second-largest aircraft order ever. The two countries have recently begun partnering more closely on several fronts, including defense manufacturing and technology innovation.

We believe this makes it an opportune time to pay closer attention to India and the exchange-traded funds that can offer investors a low-cost and tax-efficient vehicle for tactical country allocations. For those seeking broad exposure to the Indian economy, note that its equity market, as measured by the FTSE India RIC Capped Index, returned more than 13% over the second quarter of 2023 as investors shrugged off the market’s weak start to the year.1 The benchmark is tilted toward financial sector holdings with a 21% weighting.2 Information technology and energy make up the next two largest sectors, with about a 12.5% weighting for each.3


Last year, projections for India’s rapid growth expectations set it apart as a frontrunner, due to its ability to diversify into more complex industries. The country saw its ranking on the World Intellectual Property Organization’s 2022 Global Innovation Index (GII) jump to 40 from 46 (out of 132 economies).4 The country is also said to have the third-largest tech start-up ecosystem globally with increased levels of financing and investment support, according to India’s Ministry of Science and Technology.5

Sustained economic expansion benefited India’s financial sector last quarter. And in July, a US$40 billion financial sector mega-merger between Housing Development Finance Corporation, the country’s largest mortgage lender, and HDFC Bank helped the Indian market rally. The merged entity, with a market capitalization of roughly US$150 billion, is said to be the world’s fourth largest bank.6

The Indian government has aspirations to overhaul its public education system but has a long way to go. Current national spending on India’s education system is roughly 4.5% of gross domestic product (GDP), according to World Bank data,7 falling short of Modi’s promise of 6% of GDP. Basic literacy and math skills for the majority of Indian youth are still lacking, despite some slight improvement in enrollment figures.

In some cases, however, corporations may be stepping in to assist with higher education needs, especially in the competitive expansion of the back-office processing (BPO) and high-tech manufacturing arenas. Two years ago, Taiwanese universities launched a joint initiative with Indian conglomerate Tata, offering courses in electronics to its workers.8 Should India be able to expand its skilled labor workforce, it may lure more manufacturing away from elsewhere in Asia, including China, where minimum wages tend to be higher and workers now demand more.9

What’s more, the rollout of the country’s goods and services tax (GST) and growing digitization of the economy are said to be bringing more people into the formal economy. In May, Modi called out the success of the GST in a Tweet saying: “Great news for the Indian economy. Rising tax collection despite lower tax rates shows the success of how GST has increased integration and compliance.”

India began setting a solid foundation for a more digital economy over a decade ago with the launch of its national identification program, Aadhaar, which uses biometric IDs to establish proof of residence. This has yielded many social benefits and been instrumental in advancing digital financial inclusion.

Of course, job creation remains a challenge, but domestic demand has picked up. Indian consumers are also likely to have more disposable income, and as income distribution shifts, overall consumption stands to potentially see great increases. Goldman Sachs Research has projected India’s GDP will overtake the euro area’s in 2051 and America’s by 2075.10

Besides notable infrastructure buildout, financial sector growth and a vast and diverse population, India’s remarkable progress toward transitioning to clean energy is another appealing consideration for investors. The World Bank recently approved US$1.5 billion in financing to accelerate the development of India’s low-carbon energy sector.11 In addition, the International Energy Agency expects India to surpass Canada and China in the coming years to rank as the world’s third-largest ethanol market (after the United States and Brazil).12


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1. Source: Bloomberg, as of June 30, 2023. The FTSE India RIC Capped Index represents the performance of Indian large- and mid-capitalization stocks. Securities are weighted based on their free float-adjusted market capitalization and reviewed semiannually. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator of future results. See for additional data provider information.

2. Ibid.

3. Ibid.

4. Source: World Intellectual Property Organization, “Global Innovation Index 2022: What is the future of innovation-driven growth?,” 2022.

5. Source: Department of Science & Technology, “India ranks globally 3rd in Start-Up ecosystem and also in terms of number of Unicorns: Dr Jitendra Singh,” August 16, 2022.

6. Source: CNBC, “India’s HDFC Bank completes $40 billion takeover of the country’s largest mortgage lender. Here’s what it means,” July 2, 2023.

7. Source: The World Bank, “Government expenditure on education, total (% of GDP),” October 24, 2022.

8. Source: SASTRA, “SASTRA ties up with TATA Electronics – Indo Taiwan collaborative,” July 5, 2021.

9. The Economist, “Global firms are eyeing Asian alternatives to Chinese manufacturing,” February 20, 2023.

10. Source: Goldman Sachs, “The Global Economy in 2075: Growth Slows as Asia Rises,” December 8, 2022.

11. Source: The World Bank, “World Bank Approves $1.5 Billion in Financing to Support India’s Low-Carbon Transition,” June 29, 2023.

12. Source: International Energy Agency, “Renewables 2021: Analysis and forecasts to 2026,” December 2021.

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