In April this year the UN people people revealed a momentous change in the world order as India nudged aside China for title of the most populous nation on the planet.
John Wilmoth, UN Population Division director, revealed the statistically precise forecast that India was on track to house 1,425,775,850 people by the end of April, ticking above the 1.4 billion in China.
Wilmoth told assembled journalists at the UN HQ in New York that: “China’s population reached its peak size in 2022 and has begun to decline. Projections indicate that the size of the Chinese population could drop below one billion before the end of the century.”
The UN report notes the inevitable changing of the population guard followed a divergence in birth rates of the two global giants since starting on about equal terms in 1971: by 2022 China reported an average 1.2 births per woman compared to 2 in India (which is almost bang on the steady-state replacement rate of 2.1).
But if India has pulled ahead in the population data, it has some catching up to do on the economic front, according to Mugunthan Siva.
Siva head of the Sydney-based India Avenue Investment Management said the average per capital GDP in China now stands at US$10,000 versus the current Indian value of just US$2,500.
The country is, however, on a fast growth trajectory after doubling GDP over the last nine years and moving up from the 10th largest global economy to now rank fifth.
As the Indian economy accelerates further, in line with the previous China experience, the change “will have a profound effect” both for the country and global markets, he said.
Economic, political and social reforms introduced since Narendra Modi came to power in 2014 – the year before India Avenue launched – have set the stage for further transformation, too.
Modi faces a tricky election next year but fundamental changes to the Indian economy such as implementing a GST, broadening access to the banking system (most Indians now have a bank account) and relaxing business and financial restrictions that historically have put off foreign investors seem entrenched.
“Most of the important reforms have already been done,” Siva said, with the economy in India poised to reap the benefits of the new regulatory architecture over the next five years regardless of who wins the election.
For offshore investors, India has been something of a conundrum as the economic potential has never quite realised in a market-friendly format.
A decade ago, for example, India formed one of the ‘fragile five’ economies, lumped in with Brazil, Indonesia, South Africa and Turkey for their extreme vulnerability to foreign capital flows.
After 10 years of mostly solid economic growth and better fiscal management, the Indian global financial status is more robust.
“Share markets are less volatile now, too,” Siva said.
Previously, “foreign investors moving money in and out” used to dominate the Indian share market, triggering extreme volatility as global sentiment swung this way and that.
Now the growing middle class and high net worth sectors have seen local investors reach almost parity with offshore money in the Indian equities market, helping tone down the volatility.
India shares have soared this year, especially small- to mid-caps, which are up more than 20 per cent – albeit with the market easing a little last week along with global stocks.
Last week Reuters reported flows into Indian managed funds tripled in August alone following 30 straight months of increases – despite a dent to stocks in the wake of allegations against the Adani group of companies earlier this year.
Siva said India Avenue had no exposure to the Adani stocks, which represent about 6 per cent of the country’s main share index.
“Rather than speculate, we prefer to stay on the sidelines and observe market action,” the manager said in a note in January. “We don’t see this causing any systemic issues related to Indian equities for investors.”
The India Avenue strategy, available on several NZ adviser platforms and InvestNow, invests via an Australia-domiciled vehicle under advice from three Indian fund managers.
Since inception in 2016 the fund has returned more than 9.8 per cent per annum, about 1 per cent under the MSCI India index, but remains ahead of benchmark for the three years to the end of July 2023 – up about 22.3 per cent annualised versus 19 per cent for the index.
However, Siva said the dynamism of the Indian economy (it has one of the youngest median ages of about 28), ongoing reforms and increasing maturity of the business sector position the country well for growth.
India also offers diversification away from Australasian economies, which are also strongly linked to the performance of China.
“NZ and Australia are connected to China through sales of commodity products,” he said. “India is less so, as the economy is more of a local demand story – it’s an anti-commodity play.”
The India Avenue fund currently manages about A$85 million but Siva is optimistic that the diversification and global growth potential will resonate with investors.
“India has reached the point where it should have its time in the sun.”