Why India stands out from a shifting world order

Today’s persistent geopolitical tensions, divergent macro signals and a retreat from globalisation have shifted the investment paradigm. Capital is no longer searching solely for growth; it is also seeking durability. India stands uniquely at the intersection of both, which is why Indian equities offer one of the most compelling long-term opportunities in global markets.

Currently, the country is emerging as a preferred partner from this unique geopolitical moment, as the US-China rivalry intensifies and multinationals diversify their trade relationships. Unlike many Asian peers, India remains largely shielded from US tariffs. Trade agreements with the UK and the possible upcoming agreement with the EU will further open access to developed markets and strengthen investor confidence. More importantly, India has demonstrated geopolitical dexterity, adding a layer of defensiveness to the investment case.

Additionally, over the past decade, India has executed remarkable banking sector reform, non-performing assets have fallen significantly, and provisioning levels are robust, with strong capital buffers. Credit growth is expected to hit 12-13 per cent in the fiscal year of 2026, with a path toward 15 per cent plus driven not just by loan expansion, but also by structural shifts. These include digital infrastructure, financial inclusion and migration of household wealth from physical to financial assets. This structural credit buildout benefits well-positioned players such as HDFC Bank and ICICI Bank.

While historically vulnerable to foreign capital flows, India’s equity market has transformed in recent years. Domestic investors, empowered by systematic investment plans (SIPs) — the Indian equivalent of the US 401(k) employer-sponsored retirement plan — are becoming the market’s anchor. Monthly SIP flows now provide a steady, growing buffer against global volatility. From FY2020 to FY2025, assets managed in mutual funds have compounded at more than 40 per cent annually. This is sticky capital, and with more than 500m Indians expected to join the middle class by 2030, the domestic investment culture will deepen, further insulating Indian equities from foreign shocks.

Aspirational spending

By 2030, India will have more middle-income consumers than either China or the US. This group will drive more than 60 per cent of new consumption. Much like China in the early 2000s, India is entering a consumption-led growth phase, where rising incomes, urbanisation and aspirational spending converge. Companies such as Titan (jewellery), Bajaj Finance (consumer credit), and MakeMyTrip (travel) are early and clear beneficiaries of this evolution.

The country is also becoming a digital-first economy. The Unified Payments Interface (UPI) processes more than 10bn transactions monthly, while 500m-plus new bank accounts have been opened since 2014, 60 per cent of them in rural areas. This unlocks mass-market fintech, ecommerce and consumer services. Firms like PayTM and Zomato are already riding this wave of digital democratisation.

Looking ahead, the next engine of India’s growth will be industrialisation. It is drawing clear lessons from China’s rise as the world’s factory. The government’s Production Linked Incentive (PLI) scheme is reshaping India’s manufacturing base with targeted incentives in sectors like electronics, semiconductors, pharma and autos. The China+1 strategy is real and India is arguably the biggest beneficiary in Asia. Furthermore, this isn’t just about repeating China’s export story. With a rising domestic consumer base and improving logistics and infrastructure — driven by players like Larsen & Toubro, Siemens India, and Power Grid — India is positioned to consume what it produces, which provides a more resilient model under today’s global environment.

Political challenges

While India’s economic ascent and political stability are widely recognised, external observers and media occasionally highlight domestic political challenges. For instance, India’s central government in its current tenure (2024-29) lacks a single-party majority, but benefits from a stable coalition with several regional parties. This arrangement may require allocating additional resources to specific states, potentially delaying implementation of further structural reforms.

Additionally, India’s constitution firmly establishes secularism as foundational, yet challenges arise from perceived religious biases under prime minister Narendra Modi. The governing Bharatiya Janata Party and Mr Modi are closely identified with pro-majoritarian and Hindu perspectives. Policies like the Citizenship Amendment Act and the Waqf Property Act have ignited debate and public protests, detracting from the country’s economic growth agenda. Nevertheless, contrary to discrimination claims, some reforms have notably benefited Muslim communities, such as the abolition of Triple Talaq, which enhances legal protections for Muslim women.

Opposition parties have also raised corruption concerns regarding defence procurements (for example Rafale aircraft from France), certain government-funded infrastructure projects and accusations of reduced transparency in electoral funding. Comparatively, Mr Modi’s term has seen positive strides in decision-making within public sector banks, reflected in improved asset quality ratios. Additionally, the Goods and Services Tax (GST) has streamlined India’s tax system and significantly curbed tax evasion.

While India faces these challenges, it continues to offer a compelling growth story shaped by its reforms, market share gains in the global economy and the ongoing commitment to economic development.

Global uncertainty will continue to create noise. But recent market volatility represents a buying opportunity, not a reason to retreat

Structural drivers

Global uncertainty will continue to create noise. But recent market volatility represents a buying opportunity, not a reason to retreat. Earnings downgrades have largely been absorbed and are on track to recover. Macro risks have been priced in, the Reserve Bank of India’s easing cycle starting to kick in. Structural drivers remain firmly intact.

India offers a rare mix of strong growth and defensive characteristics, an increasingly rare combination in today’s world. Unlike other emerging markets, India’s equity market consistently translates strong economic growth into solid shareholder return over the past three decades.

India’s complexity is an advantage for experienced investors. With many sectors still inefficient, deep research and strong local knowledge can unlock real alpha.

Patricia Urbano, emerging equities portfolio manager, Edmond de Rothschild Asset Management