Global investors have been asking lately: “Is India the new China?” According to Chetan Ahya, chief Asia economist at Morgan Stanley, it could well be. Earlier this year, Ahya called India “the best domestic demand alpha opportunity in Asia”, with the greatest chance of overtaking rival economies. “A virtuous growth cycle is unfolding,” Ahya said in a 12-page report last month. Morgan Stanley is not alone either. Investment manager Bernstein is also optimistic about India’s growth. “India may not match China’s pace during its [capital spending] race, but given the more sustainable cycle, it is likely to last longer: the case of a few sprints of hundreds of meters versus a marathon,” a group of Bernstein analysts wrote in an extensive study in December. The firm forecasts GDP Indian output could surpass $10 trillion by 2034, joining only the United States and China to boast an economy of that size. As China’s housing market and deflation woes continue to rattle investors, the outlook India’s growth rates look even more impressive. Real GDP growth was 6.3% in 2023 annually, and Morgan Stanley forecasts the economy will expand by a similar 6.4% in 2024. India’s nominal GDP, Without adjusting for inflation, it could surpass that of Japan in 2026, the investment bank said. Growth in India could have been even faster or come sooner, except for concerns about corporate governance that have slowed some parts of foreign investment, But Prime Minister Narendra Modi has helped offset that through efforts to reform the economy (including heavy spending on infrastructure) that have encouraged other foreign investors. “I’ve never seen India as the most business-friendly environment over the years. But that’s changing,” said Bill Fitzpatrick, managing director at Logan Capital Management outside Philadelphia. “They have now built a stronger foundation to stimulate private investment. Whereas China has done the opposite, and that has essentially stifled investment,” Fitzpatrick added. Where to watch The Indian government allocated $134 billion for infrastructure spending in the current fiscal year alone. This is part of the Modi administration’s broader National Infrastructure Project announced in 2019, which initially allocated around $1.4 trillion. “Anything related to infrastructure is becoming more and more attractive,” said Quincy Krosby, chief global strategist at LPL Financial in South Carolina. U.S. investors can gain exposure to this trend through Dallas-based global infrastructure consultancy Aecom, Barclays equity strategist Venu Krishna wrote as part of a 124-page report last November. Aecom has already completed several public and private projects in India and is engaged in urban planning and development, he added. Last year’s annual report attributed strong revenue growth in part to expansion in the Middle East, India and Asia, Krishna wrote. “More than revenue, India is also an important area for talent search,” Krishna wrote. India is also upgrading its 5G telecoms infrastructure, which should benefit the optical and networking sectors, Barclays analyst Tim Long wrote in the same report. He singled out Cisco Systems and Juniper Networks for their relationships with India’s leading communications providers. “We expect India growth to continue to drive CSCO’s APJC’s overall revenue – the company’s FY23 product revenue in India increased 62% year-over-year,” Long said, referring to Asia Pacific, Japan and China. He believes Juniper’s revenue will also increase as investments in 5G accelerate. Barclays also named semiconductor companies among those that will benefit from domestic demand in India, as well as the government’s push to attract chipmakers to the country. “While Indian chip demand is relatively small (24 billion Canadian dollars according to the Indian government), we see that it could eventually become comparable to China’s current levels, suggesting a potential market of order of 500 billion Canadian dollars,” Barclays analyst Simon Coles wrote in that same study. “If Indian chip demand grew at this rate, it could help offset some of China’s potential decline. This would be positive for most semi-businesses, given that China typically contributes 20 to 30% of income”. According to Coles, US investors can gain exposure through Tower Semiconductor, which is considering opening a manufacturing plant in India. Micron Technology is already building a chip assembly plant there, he added. Advanced Micro Devices is also investing in chip development and manufacturing in India. Qualcomm said in November that it would eventually outsource chip manufacturing to India after (fabulous) manufacturing plants and outsourced semiconductor assembly and test (OSAT) facilities opened. Growth Potential However, for investors looking to gain exposure to the domestic stock market, Indian stocks are not particularly cheap. The benchmark Nifty 50 stock index, which contains the 50 largest listed companies, is currently selling at 23.2 times earnings, close to 24.6 times the S&P 500. .NSEI .SPX Mountain Nifty 50 1-Year vs. S&P 500 in the last 12 months The two largest US exchange-traded funds playing in India are iShares MSCI India ETF and WisdomTree India Earnings ETF, which already have 4% and 7.4%. higher, respectively, so far in 2024. “You’re certainly paying for the growth potential in India. And so I would expect a premium valuation,” Logan Capital’s Fitzpatrick said. While now may be a relatively expensive time to enter the market, Fitzpatrick notes that investing in India is primarily a longer-term story. “The only way to look at investments in India would be over a long period of time. They are going to be very, very volatile in the short term, over a shorter period,” Fitzpatrick said. According to Krosby, the rapid increase in foreign direct investment (FDI) in recent years has also contributed to the high valuations. The country received more than $80 billion in FDI in both 2022 and 2021. By comparison, FDI inflows were $36 billion in 2014. Still, Krosby believes India’s growth story makes it an attractive market, citing the burgeoning middle class and attractive healthcare and infrastructure sectors. . In terms of India’s economic competition with its larger neighbor, “more was expected from China” after the Covid lockdowns, Krosby said. Between the two, in terms of investment, “India is seen as a safer destination,” Krosby added. Last week, none other than Doubleline CEO Jeffrey Gundlach recommended Indian stocks as part of a forecast that the dollar will weaken and the United States will face a possible recession. “India’s economy is the strongest economy in the world,” Gundlach said on CNBC’s “Closing Bell” on Jan. 31. IShares MSCI India ETF “is a good investment for people looking to gain exposure to stocks in case of weakness.” It’s my number one recommendation for 2024,” Gundlach said. —CNBC’s Michael Bloom contributed to this report.