CONTRIBUTORS
Aimee Truesdale, CFA
Portfolio Manager
Key takeaways
- India represents a long-term growth opportunity underpinned by favorable demographics and rising domestic consumption.
- The Indian government is implementing a steady program of business-friendly structural reforms that we believe should support business returns.
- Indian equities offer potential diversification and active opportunities within emerging markets, driven by a domestically focused economy and relatively low correlation to other developing markets.
Recent disconnect between GDP growth and equity valuations
India is the world’s fastest-growing large economy, with forecasts for real gross domestic product (GDP) growth of 6.2% in 20261—approximately 50% faster than the broader emerging market universe and almost four times that of advanced economies.
The Indian equity market significantly outperformed between 2021 and 2024, driven by this rapid economic growth and structural reforms. However, 2025 provided a healthy valuation correction, bringing equity multiples back to long-term average levels and creating what we view as a more attractive environment for potential investment upside.
We believe Indian equities are worth a closer look as they bring many advantages to an emerging markets portfolio.
1. Resilience: Long-term growth drivers
India is known for its large and young population, which provides a significant boost to economic growth and supports an expanding middle class, paving the way for increased consumption. This creates viable investments as it widens the opportunity set of fast-growing, quality businesses benefiting from a vast, increasingly domestic consumer market.
Exhibit 1: Income Levels Poised to Increase
Sources: WEF, Kotak Institutional Equities estimates. As of February 2026. Data range: March fiscal year-ends, 2021-31E (mn). RS = rupees. USD values, as of February 25, 2026.
2. Reforms: Business-friendly improvements
Historically, one of the biggest hurdles of doing business in India has been excessive regulatory red tape, but Indian companies are now benefiting from policy reform initiatives. Such reforms may not be as flashy as India’s underlying growth drivers, but they are helping to enhance the business backdrop. The steady, measured progress businesses are making gives us additional confidence in India’s long-term growth trajectory.
For example, one of the key reforms of the last decade has been the introduction of a countrywide goods and services tax in 2017. This national policy replaced a complex suite of central and state-level taxes and regulations, enabling companies to implement more efficient logistics through the elimination of requirements such as mandatory freight inspections and state-level tax payments at interstate boarders.
In addition to ongoing initiatives to simplify goods and services tax frameworks, other recent examples of business-friendly reforms include last year’s streamlining and consolidating of India’s labor code and laws. Given the scale of India’s large workforce, we believe this marks a positive step forward for the country.
Finally, we have seen radical tax changes. In particular there have been significant reductions in corporation taxes that we think should greatly improve India’s competitiveness as a place to do business and enhance the future profitability of Indian companies.
Exhibit 2: Corporate Tax Rates Becoming More Competitive Versus Rest of Asia
Sources: Deloitte, KPMG, Kotak Institutional Equities. As of February 2026. Data: 2023 calendar year-ends.
3. Road ahead: Diversified opportunities
While India is known for benefiting from its “demographic dividend,” what may be less apparent is the vast breadth of investment opportunities the country offers. The Indian market features over 5,000 listed companies spanning a wide range of sectors and industries.
India is actively expanding and diversifying its manufacturing capabilities and is increasingly being seen as a compelling alternative to China for sourcing technology hardware. For example, 20% of all iPhones are now assembled in India,2 a number expected to keep rising as manufacturing supply chains in India mature.
India’s culture of innovative and fast technology adoption, along with its large, tech-savvy workforce, is also helping to facilitate the rapid adoption of artificial intelligence (AI), which we expect will have significant implications across a wide range of sectors. And, importantly, India’s vibrant startup economy is supported by a growing domestic investment community.
Exhibit 3: MSCI India Sector Weights
Source: MSCI India Index (USD). As of January 30, 2026. The MSCI India Index is designed to measure the performance of the large and mid cap segments of the Indian market. With 64 constituents, the index covers approximately 85% of the Indian equity universe. Indexes are unmanaged and one cannot invest directly in an index.
India’s investment story is built on solid foundations: strong long term growth drivers, a steady pace of reform and an economy that is increasingly diversifying. With growth continuing to outpace peers and valuations having eased back to more reasonable levels, we believe Indian equities are well-placed to play a valuable role within an emerging markets portfolio.
Endnotes
- Source: International Monetary Fund. February 17, 2026.
- Source: Techwire Asia. August 22, 2025.
What are the risks?
All investments involve risks, including possible loss of principal.
Equity securities are subject to price fluctuation and possible loss of principal. Small- and mid-cap stocks involve greater risks and volatility than large-cap stocks.
Investment strategies which incorporate the identification of thematic investment opportunities, and their performance, may be negatively impacted if the investment manager does not correctly identify such opportunities or if the theme develops in an unexpected manner. Focusing investments in information technology (IT) and technology-related industries carries much greater risks of adverse developments and price movements in such industries than a strategy that invests in a wider variety of industries.
There are special risks associated with investments in China, Hong Kong and Taiwan, including less liquidity, expropriation, confiscatory taxation, international trade tensions, nationalization, and exchange control regulations and rapid inflation, all of which can negatively impact the fund. Investments in Taiwan could be adversely affected by its political and economic relationship with China.
Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.
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