The Future of Investments: Why India is the New Safe Haven for Global Investors
Contrary to China, India doesn’t suffer from a system marred by a lack of transparency, which has led to investors' confidence and volatility
Given current global financial volatilities, the major challenge for global investors is to identify a safe destination to park their funds, in order to reduce risk and, at the same time, ensure promising yields.
The concerns of the investors have heightened due to recent political developments like Trump's re-accession to the US presidentship and recurring volatilities in the Chinese market. Moreover, the anti-China sentiments in the West and the possible risk of higher tariffs on Chinese imports by the upcoming Trump regime have led geo-economic-political observers to hold their breath in anticipation of upcoming policy amendments. Thus, in the world of Trump and China-induced volatilities, Indian markets are being hailed as “go-to-market” and “safe oasis”.
However, it is interesting to note that India's rapidly alleviating position as a favored destination is not a default outcome of the brimming global volatilities. Instead, the global geo-political uncertainties are further buttressing India’s already strong growth prospects, robust domestic demand, and a relatively stable currency, making New Delhi a lucrative investment destination for investors worldwide.
Contrary to China, India doesn’t suffer from a system marred by a lack of transparency, which has led to investors' confidence and volatility. The Chinese equities are known to be highly volatile, which makes them less palatable for investors with higher risk aversion. Beijing policymakers abruptly instituted shifts in policies related to hedge funds in October 2024, taking everyone by surprise.
Today’s financial markets are characterized by hypersensitivity to the slightest of unfavourable news, in the era of real-time information dissemination and high-frequency data flow. Thus, any unfavourablenews can lead to drastic capital flight and severe ripple effects in the economy, especially in the backdrop of the Global Financial Crisis and the looming fear of the impending another. This is where India emerges as a highly differentiated market, with high levels of transparency, feeding investors with valuable data insights from time to time, like monthly holdings data and mandatory disclosure of managers' deferred compensation. Thus, India has a comparative advantage over China in this respect, apart from its structural virtues in terms of a resilient banking system, political will, and freedom.
One major contributor to the resilience to global financial volatility and thus a favorable destination for investors is the effective regulations by the Reserve Bank of India (RBI), which has made sure to maintain substantial foreign exchange reserves at USD 671 billion present. On the corporate front, again, India’s performance has been impressive with slight ups and downs.
Apart from external factors, there are various internal factors that are boosting the net flow of investment in India. India is making use of its legal and regulatory systems to attract foreign capital. Various regulatory reforms have been introduced over the last few years, like changes to specifications in disclosure requirements and relaxing the requirement of foreign-based companies to get approval from India's National Company Law Tribunal for mergers with domestic subsidiaries. Along with the emergence of the GIFT city in Gujarat, incentives like 100% tax exemption on business profits for any 10 consecutive years within a 15-year period to certain companies have made the Indian market more accessible for corporations. In April 2024, India’s Finance Act 2024 abolished the angel tax for all categories of investors with effect from 1 April 2024. In August, the government removed the 2% equalization levy on foreign digital services, and in December 2024, the law was amended to reduce the Corporate Income tax rate on foreign companies from 40% to 35%.
On the bond market front, Indian bonds are known for playing a dual role in portfolios. They are a safe diversification tool, and Indian bonds yield higher returns compared to their counterparts in emerging economies. Moreover, as mentioned, the stabilization of the rupee by the central bank, makes it less risky for the carry trade.
Seasonal investment experts like Mark Mobius have also referred to India as a safe haven for investment as well as the "land of opportunities and innovation." India’s comparative advantage lies not just in its robust economic variables but also, as he points out, stable government and strong political will, accompanied by its demographic dividend. As per a report by Barclays, “Indian equities have remained relatively resilient despite the volatile global backdrop and inflation marching higher”, with a promising outlook for Indian equities, with strong demand-driven economic growth.
Thus, global volatilities and geopolitical tensions leading to positive externalities for the Indian economy, accompanied by India’s strong and resilient growth and financial markets, strong digital economy, infrastructure assets, and green economy, are emerging as important niches attracting foreign investors seeking less risky diversification and formidable return on investments. Thus, India is expected to maintain its status as a destination immune to drastic global market volatilities and a safe haven for global investors.
