India was hit with a 26 per cent reciprocal tariff on “Liberation Day”, one of the highest rates applied, before being temporarily reduced to 10 per cent pending further negotiations.
But while the US is one of the primary export destinations for India’s goods, it is well-positioned to prosper under Donald Trump’s protectionist regime.
This is according to VanEck, who this week announced the upcoming launch of its India Growth Leaders ETF (ASX: GRIN), which aims to offer investors targeted exposure to a portfolio of high-growth Indian companies.
Divulging on the opportunity set the firm sees in the region, VanEck’s APAC chief executive and managing director, Arian Neiron, told InvestorDaily India will remain somewhat insulated from the flurry of tariff announcements chiefly because of its strong domestic consumption.
Namely, domestic consumption accounts for some 70 per cent of India’s gross domestic product (GDP), which is expected to persist over time given its “demographic dividend”, coupled with increasing urbanisation.
“The demographic dividend refers to the economic growth potential that comes from the shift in a country’s age structure,” Neiron said.
“As well as being the most populous nation in the world, India has a greater proportion of the working age population (15–64 years) that will continue to drive the country’s economic growth forward due to increasing urbanisation and rising wealth, a healthy ecosystem of effective regulatory processes, a strong infrastructure push by the government, a manufacturing sector gaining traction under supply chain diversification, sustainable and pro-industry policies and growing renewable energy capacity.”
India is also seeing its middle class become its fastest-growing social segment, surging 14 per cent in the last decade.
“The multiplier effects stemming from this transition are expected to have a significant impact on the overall economy,” Neiron said.
Not worth discounting is India’s own protectionist tariff regime, he noted, which serves to keep consumption local. This includes a tariff of up to 150 per cent on alcoholic beverages, up to 100 per cent on automobiles, and up to 100 per cent on agricultural commodities like coffee.
Be that as it may, this doesn’t change the fact that the US – and its mercurial administration – remains India’s top goods export partner.
But according to Neiron, Indian exports make up less than a quarter (22.6 per cent) of its economy, in contrast to regional counterparts who are more reliant on exports for economic growth, like Vietnam (87 per cent) and Taiwan (70 per cent).
For now, India remains safe from Trump’s reciprocal tariff policy on exported services, an important reprieve for a nation that leads its peers in outsourcing, with such services accounting for nearly 44 per cent of its exports.
Moreover, Neiron believes India is still well-positioned to increase its influence in the global supply chain as a country that already benefits from a highly diverse global trade network.
“Prior to the 90-day pause on reciprocal tariffs, India’s tariffs were at the lower end of the spectrum compared to other global manufacturing hubs at 26 per cent, compared to China (145 per cent), Cambodia (49 per cent), Vietnam (46 per cent), Bangladesh (37 per cent), Indonesia (32 per cent) and Taiwan (32 per cent),” he said.
“This presents an opportunity for India to grow market share where it has existing manufacturing capabilities, such as textiles/garments and electronic goods.”
The iPhone is a good example, with Apple’s manufacturing partner Foxconn traditionally making the majority of these in China. But in recent years, it has diversified to other countries like India.
Data from Bloomberg shows that a fifth of iPhones are now made in India, representing a 60 per cent increase year-on-year.
A long-term growth play
According to Neiron, India’s economic growth is a longer-term play.
As one of the fastest growing economies in the world, it has doubled in size over the last decade, growing from $2.1 trillion in 2015 to a projected $4.27 trillion by 2025, and its growth trajectory is expected to continue.
Citing IMF data, Neiron said India will clock a growth rate of 6.5 per cent over the next five years, during which time it is expected to double its current GDP of $3.5 trillion to $7 trillion. By 2028, it is expected to overtake China as the world’s third-largest economy after the US and China.
“Further, India’s aforementioned ‘demographic dividend’ is expected to peak around 2041, when the share of the working-age population (20–59 years) is expected to reach 59 per cent, and persist until at least 2055–56,” the CEO said.
When thinking about this in the context of its new ETF, Neiron said GARP strategies are designed to identify companies with the most long-term growth potential, which boils down to solid earnings growth and reasonable valuations.
“The GARP lens helps avoid cyclicals that may be value traps and as well as overpriced high growth names with weak fundamentals,” he said.
“In a market like India, where sentiment and earnings cycles can swing, GARP offers a balanced, risk-managed approach. This strategy is overweight industrials relative to MSCI India and is where we see most of India’s growth coming from”.
