Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / How India Is Becoming the New China in Emerging Markets
Transcript
- Lucas: India's trade data from the first quarter of this year just came in, and it's worth sitting up for. Exports of goods and services hit their highest level in over a year — three point five trillion dollars annualised — and imports were also elevated. But the headline number that's getting attention in EM circles is the narrowing of India's current account deficit. Luna: I saw that — the current account balance went from negative two hundred and thirty-nine billion to negative one hundred and ninety billion over the past six months. That's a serious improvement. Lucas: Exactly. And the driver isn't just lower oil prices or remittances. It's goods exports — specifically electronics, pharmaceuticals, and engineering products. That's a structural shift. Luna: For years we talked about India as a services economy — IT, back-office, call centers. But this looks like a real manufacturing pivot. What changed? Lucas: A few things. First, the production-linked incentive schemes — the PLI programs — have actually worked in sectors like mobile phones and medical devices. Second, global companies are doing the China-plus-one calculus more seriously now. Vietnam got a lot of the early low-end assembly, but India is getting the higher-value stuff because of scale and engineering talent. Luna: And the data backs that up. The iShares MSCI India ETF — ticker i n d a — is up eight percent year-to-date, while the broad EM fund EEM is flat. Investors are voting with their dollars. Lucas: South Korea's EWY is up even more — eight percent in the last five days alone — but that's a different story driven by semiconductors. India's move is more broad-based. Luna: And yet, if you look at China ETFs — FXI, MCHI — they're down over the past week. The divergence is stark. India is essentially inheriting the mantle that China held for two decades. Lucas: The question is whether India can actually sustain it. China had authoritarian efficiency and massive state-directed investment. India has democracy, bureaucracy, and a lot of messy politics. Luna: But it also has demographics. Median age in India is twenty-eight. In China it's thirty-eight. That's a decade of working-age advantage. Lucas: And digital infrastructure. India's UPI payments system — Unified Payments Interface — is arguably the most advanced in the world. That's creating a fintech ecosystem that's leapfrogging traditional banking. When you combine that with manufacturing incentives, you get a powerful mix. Luna: Blackstone just closed its largest Asia private equity fund at over thirteen billion dollars, and reports say a big chunk is earmarked for India. Private equity sees the same story. Lucas: The risk is execution. India has a history of announcing big plans and then getting bogged down in land acquisition disputes or regulatory flip-flops. But the current government has been more consistent than its predecessors. Luna: And the external environment helps. U.S.-China tensions aren't going away. Even if the tariff headlines cool down, companies are still diversifying supply chains. India is the most natural alternative for scale. Lucas: That's the key word — scale. Vietnam is great for sneakers and furniture. India can do cars, electronics, pharmaceuticals, even semiconductor assembly. The Modi government just approved three new semiconductor fabrication plants. Luna: So if an investor wants exposure to this trend, the obvious tool is the INDA ETF. But are there other ways to play it? Lucas: There are India-focused small-cap ETFs, but liquidity is thin. Some investors buy the Indian rupee bonds via ETFs like the VanEck India Bond ETF. But the simplest play is large-cap equities via INDA or the Franklin India ETF. Luna: One risk that comes up often is valuations. India's price to earnings ratio is around twenty-two, which is a premium to other emerging markets. You're paying up for growth. Lucas: That's true. The MSCI India index trades at about twenty-two times forward earnings, compared to twelve times for China. But if earnings grow as expected, the premium is justified. The question is whether the earnings materialise. Luna: And there's the currency risk. The Indian rupee has been gradually depreciating against the dollar over the past decade. That can eat into returns for foreign investors. Lucas: Right. But the Reserve Bank of India has been managing that pretty well — they've built up foreign exchange reserves to over six hundred billion dollars, so they have firepower to defend the rupee if needed. Luna: There's also the political angle. Elections are coming up in 2027. If the current government loses, some of the reform momentum could stall. Lucas: That's a legitimate concern. But look at the state elections just last month — the ruling party actually gained seats in key manufacturing states like Gujarat and Tamil Nadu. That suggests the reforms are popular with voters who see jobs coming. Luna: Before we wrap, I want to mention something that's been on my mind. If walking through the economy with us has made something click — maybe you finally understood why trade deficits matter, or how ETF flows signal investor sentiment — a couple of dollars a month genuinely keeps these shows going. It's how we stay independent and ad-free. Lucas: Yeah, it's a small thing that makes a real difference. If you've gotten value from Fexingo, you can support us at buy me a coffee dot com slash fexingo. That's buy me a coffee dot com slash fexingo. Luna: And we really appreciate it. It's what lets us keep digging into these topics without chasing clicks or sponsorships. Lucas: So, back to India. The bottom line is that the data is pointing in the right direction, but investors need to be selective. Not every Indian company will benefit from the manufacturing boom — it's going to be a story of winners and losers. Luna: And for listeners who want to track this, keep an eye on the monthly export data and the INDA ETF flows. If the trend continues, India could reshape the entire emerging markets index in the next five years. Lucas: Right now, it's the most exciting story in EM — but also the one that requires the most patience. Thanks for joining us.