In 2025, global investors are asking: Why should India be the core of an emerging market portfolio?
This is not just a theoretical question. The answer lies in a confluence of structural, macroeconomic, and market-specific factors that set India apart from its peers. While other emerging markets (EMs) have struggled with shrinking middle classes, political uncertainty, and volatile capital flows, India has delivered consistent out performance, resilience, and promise for long-term wealth creation.

Let’s break down why this debate is so prominent now:

• EMs are diverging: China, once the EM poster child, faces growth headwinds, policy overhang, and geopolitical isolation. Brazil, Russia, and South Africa remain mired in cyclical and structural challenges.

• India’s outperformance is not new. Over 10, 20, and 30-year horizons, Indian equities have consistently outpaced most EM peers. (1)

• Global capital is on the move: With US and European valuations stretched, and China’s investability in question, investors are seeking scalable, liquid, and growing EMs- India fits the bill.

India’s Unique Structural Story

1. Consistent Economic Growth and Scale

India's representation in the MSCI Emerging Markets Index has seen a significant uptick, reaching approximately 19.7% in early 2025. This growth is indicative of the country's expanding market capitalisation and investor confidence. Notably, in August 2024, India briefly surpassed China in the MSCI EM Investable Market Index (IMI), reflecting its expanding market capitalisation and investor appeal. India’s GDP growth continues to outpace most emerging and developed markets. The IMF and World Bank project India to remain the fastest-growing major economy in 2025, with real GDP growth expected to exceed 6.5%.

This shift reflects not only market dynamics but also India's robust economic fundamentals and investor confidence and confidence in India is evident through record FDI inflows of $40.7 billion (up 27% year-on-year), a 40% surge in venture capital funding, and India’s 19.7% weight in the MSCI Emerging Markets Index. The country captured 22% of global IPO activity in early 2025 and saw over 1,000 greenfield project announcements last year. These numbers, combined with robust policy support and resilient economic growth, make India the most attractive and reliable destination for long-term investment among emerging markets in 2025.

• Population advantage: With 1.4+ billion people and a rapidly expanding middle class, India offers scale unmatched by any EM except China.

• Domestic demand: Unlike export-dependent EMs, India’s growth is powered by domestic consumption, cushioning it from global shocks.

2. Resilient Market Performance

According to the MSCI India Index, Indian equities have delivered robust annualised returns, outperforming the broader MSCI Emerging Markets Index over all major periods.

• 2025 YTD: India remains one of the few EMs in positive territory, even as global volatility persists. (6)
  

• Long-term trend: Over the past decade, MSCI India has compounded at a higher rate than China, Brazil, or Russia. A direct comparison of 10-year annualised returns (CAGR) for the MSCI India, MSCI China, and MSCI Brazil indices, using the most recent and authoritative sources as of March 31, 2025:

3. Favourable Macro Backdrop

• Stable rupee: The INR has stabilised, thanks to the prudent RBI policy and strong forex reserves.

• Declining oil prices: Lower crude prices have eased fiscal and current account pressures.

• Easing inflation: March CPI inflation hit a six-year low, opening the door for further RBI rate cuts, which will boost credit and consumption.

4. Policy and Reform Momentum

• Government reforms: Continued focus on infrastructure, digitisation (UPI, Aadhaar), and manufacturing (PLI schemes) are transforming India’s economic landscape.

• ‘China + 1’ strategy: As global supply chains diversify, India is capturing incremental FDI in electronics, renewables, and speciality manufacturing. (2)

5. Robust Corporate Earnings and Sectoral Leadership

• Private banks: Herald Van Der Linde highlighted that India’s private banks drive sectoral narratives, benefiting from strong balance sheets and digital adoption.

• Consumer and financials: These sectors continue to attract global capital, reflecting India’s domestic demand story.

India vs. Other Emerging Markets: The Data Speaks

MSCI Index Comparison (2025 YTD)

• MSCI India: Positive returns, outperforming both the MSCI EM and MSCI China indices.

• MSCI China: Still lagging, weighed down by property sector woes and policy risk.

• Other EMs: Brazil, South Africa, and Russia remain volatile and lack India’s scale or reform momentum.

Capital Flows

• FPIs have returned: After a brief outflow period, foreign investors have poured billions back into Indian equities in 2025, marking the longest buying streak in two years Over the past 10–20 years, FPIs have been key drivers of India’s equity markets, with notable inflows like $21.7 billion in Q4 2020 and sharp outflows such as $14.7 billion in March 2020. Recently, domestic investors have provided stability amid FPI volatility. After early 2025 outflows exceeding ₹1.12 lakh crore, FPIs returned strongly in April with net inflows of over ₹10,000 crore longest buying streak in two years. Significant sectoral inflows, including ₹26,000 crore into financials and banking in late March, highlight renewed global confidence. (3)
  

• Dedicated attention: As Victor Shevts of Macquarie Capital notes, India is now a “must-have” in global EM allocations. (4)

Structural Middle-Class Growth

• India’s middle class is expanding, unlike many EM peers, which are stagnating or shrinking. This underpins sustained consumption growth and market depth.

What About Risks?

No market is without risk. India faces near-term challenges- election cycles, monsoon dependency, and global trade tensions. 

1. Political Uncertainty and Election Cycles

India’s political landscape has become more unpredictable following the 2024 general election, which resulted in a coalition government after a decade of single-party dominance. This shift introduces uncertainty around the continuity and pace of economic reforms, as coalition governments often require compromise and consensus-building, potentially slowing down decision-making. The immediate market reaction was sharp, with equities experiencing significant volatility as investors questioned whether the new government could maintain a pro-business agenda and deliver on its reform promises. This political uncertainty can impact key sectors such as infrastructure, capital goods, and industrials, while potentially favouring consumption-oriented sectors if populist policies take precedence.

2. Monsoon Dependency and Agricultural Risks

Despite advances in irrigation and infrastructure, India’s economy remains heavily dependent on the monsoon, particularly in the agricultural sector. Over 40% of the country’s sown area still relies on seasonal rainfall, making agricultural output- and by extension, rural incomes and consumption- highly vulnerable to weather fluctuations. A good monsoon can boost GDP growth and spur rural demand, while a deficient or erratic monsoon can lead to lower crop yields, supply chain disruptions, and spikes in food inflation. This dependency not only affects rural livelihoods but also has broader implications for overall economic stability and inflation management.

3. Global Trade Tensions and Geopolitical Risks

India is increasingly integrated into the global economy, making it susceptible to external shocks such as trade disputes, geopolitical conflicts, and shifts in international alliances. Ongoing global trade tensions can disrupt supply chains, increase input costs, and result in volatile commodity prices, all of which can negatively impact India’s exports and domestic manufacturing sectors. Prolonged geopolitical instability can also deter foreign investment and delay critical infrastructure or industrial projects, further amplifying market volatility and uncertainty about future growth prospects.

However, these are dwarfed by the country’s long-term structural strengths:

• Policy Continuity: India’s steady reform momentum and political stability underpin its growth outlook. Even with the coalition government formed in 2024, the Union Budget 2025-26 retained about 98% of existing policies, signalling strong continuity. This predictable environment boosts and encourages long-term investment, supporting India’s ambition to become the world’s third-largest economy by 2027. The government’s focus on targeted reforms and fiscal discipline further strengthens the foundation for sustainable growth.

• Demographic Dividend: With over 65% of its population under 35, India enjoys a significant demographic advantage. This young, tech-savvy workforce is driving innovation and fueling demand in sectors like technology, e-commerce, and financial services. Government initiatives in digital education and skill development are enhancing this advantage, positioning India as a global leader in innovation and consumption-led growth.

• Financial Deepening: The surge in mutual fund SIPs and retail participation highlights the deepening of India’s financial markets. In FY 2024-25, SIP contributions rose over 32% year-on-year, reaching Rs 2.63 lakh crore (April-February), with assets under management at Rs 12.38 lakh crore-about 20% of the industry’s total. The number of active SIP accounts is now around 8.26 crore, reflecting growing financial literacy and stable capital inflows. This trend supports both wealth creation and long-term market resilience.

What Does This Mean for Long-Term Investors?

1. Compounding Advantage

India’s structural growth, market depth, and reform trajectory make it an ideal core EM holding for patient, long-term investors.

2. Sectoral Opportunities

• Private banks, consumers, and IT offer secular growth stories. (5)

• Manufacturing and renewables are emerging as new engines of growth, supported by government incentives.

3. Favourable Policy Environment

With inflation under control and as the RBI shifted its policy stance from “neutral” to “accommodative,” explicitly indicating a higher probability of further rate cuts in 2025, the macro environment is supportive for equities.

Conclusion: The EM to Own for the Next Decade

As Mark Matthews of Julius Baer puts it, “India is the only emerging market that people should own for the long term.”

India's scale, growth, reform, and market performance will make it the standout EM for global investors in 2025. For those with a multi-year horizon, India offers not just a tactical opportunity but a structural story of compounding wealth.

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FAQs

1. Why is India considered a top emerging market in 2025?

India stands out for its strong GDP growth, expanding middle class, policy reforms, and consistent equity market performance, making it a top choice among emerging markets.

2. How have Indian equities performed compared to other emerging markets?

Over the past decade, Indian equities have outperformed peers like China and Brazil, with the MSCI India Index delivering a 10-year CAGR of 9.4% (as of March 2025).

3. What factors are driving foreign investment into India in 2025?

Key drivers include stable macroeconomic conditions, high FDI inflows, a digital-first economy, and government-led reforms like PLI and infrastructure development.

4. What are the risks of investing in India as an emerging market?

Risks include political uncertainty post-2024 elections, monsoon dependency, and exposure to global trade volatility. However, India’s long-term structural strengths help offset these risks.

5. Is India a good long-term investment for global portfolios?

Yes. With strong fundamentals, market depth, and compounding potential, India is increasingly seen as a core holding for long-term emerging market strategies.