Summary
Executive summary
In this paper we examine the multiâfaceted transformation of Indiaâs economy and financial markets and the implications for global investors. Among the structural drivers supporting growth we explore the scaling up of domestic manufacturing, the broadening consumption base, the improved infrastructure and strategic trade relationships, alongside ongoing policy measures to simplify taxation, strengthen data and regulatory frameworks, and improve market access. While the macroeconomic outlook is supportive, risks remain, reminding investors of the relevance of setting out actions to capture opportunities while managing these risks. Here are our key findings:
Structural growth drivers: Indiaâs mediumâterm growth prospects are supported by a policy push to localise strategic manufacturing, investment in capitalâintensive sectors, and reforms to improve the ease of doing business. These initiatives should raise productive capacity and shift the economy towards higher valueâadded sectors.
Consumption upgrading: Household demand is shifting from essentials to discretionary and aspirational categories as incomes rise; vehicle ownership, domestic tourism, and higherâend durable goods are clear beneficiaries. This should support a sustainable expansion in domestic revenueâdriven sectors.
Fiscal and tax reform: Goods and Services Tax (GST) simplification and taxâpolicy measures are designed to incentivise formalisation, broaden the tax base, and spur domestic demand; if implemented smoothly, these reforms should boost mediumâterm growth and improve fiscal transparency.
External positioning and trade policy: Active trade negotiations and renewed diversification of export markets are helping reduce dependence on any single trading partner and enhance resilience to geopolitical fragmentation.
Market structure and investor access: Deepening bond and equity markets, rising ESGâaligned issuance, and improved index inclusion have reduced market frictions for foreign investors, while widening the domestic investor base.
Diversification benefits: Indian assets offer diversification benefits for global portfolios due to low correlation with many DM assets and improved return prospects, particularly over the long term.
Risks: Nearâterm risks include cyclical softness in growth, persistent inflation, FX and liquidity volatility, and sectorâspecific valuation pressures. Sovereign and corporate supply dynamics mean duration and creditâselection risks require active management.
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