We believe India’s compelling demographics, market friendly governance, and distinctive risk/return profile make it an attractive standalone investment.
Key Takeaways
Diversification Benefits: The MSCI India Index has a low correlation to both Emerging Market (EM) and Developed Market (DM) equities.
Structural Growth Advantage: India likely has an advantage over many EM peers given its market friendly governance, position as a China+1 beneficiary, young population, and growing international trade ties.
Historically Superior Returns: India's three- and five-year volatility-adjusted equity returns have outpaced both broad EM and U.S. markets.
The Value of Diversification: India offers uncorrelated exposures relative to other EMs and DMs
Domestically Driven Market: The MSCI India Index has a low correlation and beta of ~0.5 to the broader MSCI EM Index and a correlation of below 0.2 to U.S. equities as measured by the S&P 500 Index.1
The Benefits of Gold: Indian equites typically offer positive exposure to high gold prices, due to cultural demand and gold-backed rural wealth.
U.S. Dollar Impact: India generally benefits from a weak U.S. dollar, as this trend improves capital flows, lowers import costs, and strengthens rupee-denominated assets.
Net Oil Importer: India imports nearly 90% of its oil consumption, so lower oil prices ease its current account deficit and inflation.2
The Best of Emerging Markets: For allocators wary of EM’s macro instability or geopolitical risk, India stands apart
Profitable Growth: India is forecast to remain the world’s fastest-growing major economy6
Risk Adjusted Returns: Despite historical perceptions of volatility, India has delivered superior risk ratios in recent years
Conclusion
In our view, India is not only a standout within EM, it is a structurally distinct growth engine that warrants standalone consideration across broad equity portfolios. Its relatively low correlation with other risk assets, robust fundamentals, and reform-driven governance offer both diversification and alpha potential. While India is still an Emerging Market and subject to volatility in terms of geopolitics, trade, foreign exchange, etc., we believe the country’s benefits come without the same level of macro volatility associated with many EM peers. In summary, we see India as an attractive standalone investment opportunity.
