We have seen a significant divergence in performance since the Covid pandemic. China’s zero Covid strategy has caused unprecedented economic damage with growth stalling and company profits collapsing. Since abandoning this strategy late last year, the recovery has been disappointing with unemployment remaining high and fears over deflation.

One of the attractions of India is that it has a democratic system which reassures investors and tends to help private enterprises flourish. India is also benefitting from the geopolitical tensions between China and the West, notably China rivalling the US in key advanced industries like semiconductors and artificial intelligence.

In the interest of national security, diversifying supply chains to more friendly countries (or friend-shoring) have become the norm.

India is reforming its economy on multiple fronts by increasing the ease of doing business to improve investor confidence. In 2017, it simplified the tax system introducing the Goods and Services Tax (GST) that replaced multiple indirect taxes and created a unified structure.

India has opened up more sectors to international investors and is incentivising foreign companies in order to grow its manufacturing capability. India is providing a $10bn incentive to encourage chip manufacturing and $2bn for attracting foreign companies involved in IT hardware manufacturing.

These factors are already making an impact. Apple plans to increase its iPhone production in India from 6% to potentially 25% by 2025. Another interesting opportunity is the country’s changing energy mix, as it moves away from coal and looks to create new demands for electric solutions by providing greater subsidies for grid batteries.

The tight western labour market and working from home has also helped India, as it has resulted in more outsourcing to the country, as companies are capitalising on the skilled work force and its cost effectiveness.

Moreover, India is currently one of the most under leveraged countries in the world at 57% debt to GDP, so it is not hindered by the higher repayments that has bogged some heavily indebted nations and there is more headroom for economic growth.

Last year, India became the fifth largest economy in the world overtaking the UK, and is set to become the third largest by 2027. As of April this year, India has overtaken China to become the most populated country in the world and it is still projected to grow (the population is expected to peak in 2064).

The median age of the population is only 28 years old with more than 40% of the population being under 25. The younger labour force should contribute to greater economic growth providing India with a demographic dividend.

We hold the Stewart Investors Global Emerging Markets Leaders fund and Pacific Assets Trust in our portfolios. They hold companies such as Tata Consultancy Services and Infosys who provide IT services across different industries – the latter has partnered with Microsoft to help them accelerate their cloud enterprise.

Andrew Cheung is investment analyst at EQ Investors