A big transition in the development of emerging markets tends to be an increase in the contribution of domestic consumption to economic growth.

Historically, emerging markets have tended to be much more reliant on exports to the West to grow their economies.

Making the transition to greater domestic-led economic activity has been a key part of China’s economic strategy in recent years and a similar trend is already in motion with one of the best performing markets in the developing world – namely India.

The MSCI India index has delivered an annualised return over 10 years of 13%, compared with just 7% for the broader MSCI Emerging Markets benchmark.

A young, rapidly growing and increasingly affluent population has driven consumer spending higher in India; up 6.5% in 2022 and 17.6% in 2021, down 5.2% in 2020 thanks to the pandemic, but up 7.8% in 2019 according to World Bank data.

In the International Monetary Fund’s July 2023 update to its World Economic Outlook, it raised its Indian growth forecast. The IMF observed: ‘Growth in India is projected at 6.1% in 2023, a 0.2 percentage point upward revision compared with the April projection, reflecting momentum from stronger-than-expected growth in the fourth quarter of 2022 as a result of stronger domestic investment.’

The recovery in the buying power of the India consumer following the pandemic can also be seen by comparing the make-up of the MSCI India index from September 2021 with today. The consumer discretionary sector has a significantly increased weighting.

This outlook is part of a series being sponsored by Templeton Emerging Markets Investment Trust. For more information on the trust, visit www.temit.co.uk

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