Set to become the world’s third-largest economy, institutional Australian investors should consider the country as a long-term allocation rather than a tactical trade, according to India Avenue Investment Management.
Expectations that India will soon become the world’s third-largest economy were reinforced at the World Economic Forum in Davos last week.
“India will become the third-largest economy in the coming few years itself,” said panellist Ashwini Vaishnaw, India’s minister of electronics and information technology, minister of railways, and minister of information and broadcasting.
US economist and former International Monetary Fund (IMF) deputy managing director Gita Gopinath agreed: “Without a doubt, India will become the third-largest economy of the world,” pointing to projections that place the milestone around 2028.
As a result, India is now too large and too structurally important for Australian institutional investors to ignore, India Avenue chief investment officer and co-founder Mugunthan Siva told InvestorDaily.
“The opportunity to participate from here on in over the next few decades, remains viable. Capital allocation will need to be insightful and purposeful, rather than ‘lazy’ and ‘unresearched,”
With trade uncertainty, tariffs and geopolitical fragmentation reshaping global capital flows, this backdrop strengthens the strategic case for India in Australian institutional portfolios, according to Siva.
“India is economically integrated with Asia while remaining geopolitically aligned with Western partners, giving investors diversification without taking on excessive political risk. At the same time, India’s growth is driven far more by domestic demand than by export cycles, making it less vulnerable to global trade disruptions. Its young population, rising incomes and rapid formalisation create a resilient internal engine that continues even when global conditions soften,” he said.
Siva believes India should be approached as a long-term allocation rather than a tactical trade.
“The country’s growth drivers of demographics, formalisation, digital infrastructure, and rising consumption will play out over the next few decades, so investment horizons need to match that structural timeframe.”
“You could say India has ‘unique’ demographics, which drive its macroeconomic resilience. India’s investment profile offers capital growth and diversity to Australian investment portfolios. However, investors still need to navigate regulatory consistency, infrastructure bottlenecks, and execution,” he said.
Ahead of Davos, the IMF had raised its forecast for India’s growth next fiscal year to over 7 per cent, citing strong momentum and positioning the country as a key global growth engine even as worldwide growth slows.
Despite this outlook, India Avenue says it still faces resistance from Australian investors. Siva said India is often overlooked by local institutions seeking to deploy capital.
“For Australian institutions, the combination of structural reforms, a deepening corporate ecosystem, and a young, expanding consumer base makes India one of the most compelling long-term opportunities globally,” he said.
Since liberalising its economy in 1991, India has averaged growth above 6.5 per cent. That performance has been underpinned by favourable demographics and, more recently, reforms led by Prime Minister Narendra Modi.
“The BJP Government, led by Prime Minister, Narendra Modi, has put in place several reforms to unlock some of India’s growth potential through improved physical and digital infrastructure, which should help to increase India’s GDP per capita. There is still a long way to go, but the journey has begun,” Siva told InvestorDaily.
Macroeconomic volatility has remained relatively contained, supported by prudent policy, rising foreign exchange reserves and the emergence of globally competitive sectors such as IT services, pharmaceuticals, specialty chemicals and electronics.
Siva acknowledged that the past 15 months have been more challenging, following equity market highs in late 2024. Earnings growth has moderated to high single digits, corporate investment has been cautious amid geopolitical uncertainty, and government spending has remained disciplined.
Economists at Davos highlighted India’s low inflation and expanding digital infrastructure as key strengths. “India’s macro backdrop right now is unusually supportive. Low, well-anchored inflation and a globally unique digital infrastructure stack influence how we allocate capital for international investors,” Siva said.
For investors, that translates to more predictable cost structures, stable real rates and clearer multi-year growth visibility. “This stability lets us take longer-duration positions in sectors like financials, consumer, and manufacturing, where earnings compounding is key.”
The Indian rupee has also weakened against the Australian dollar, partly due to currency adjustments by the Reserve Bank of India to cushion trade pressures and boost export competitiveness.
“Its currency has depreciated significantly against the AUD as the Reserve Bank of India has ‘allowed’ the currency to appreciate in an orderly fashion to cushion the impact of import tariffs being imposed on India (particularly from the US) – by making its exports more competitive elsewhere in the world.”
Siva said weaker markets and currency conditions create a timely entry point.
“In the past foreign investors have often erred entering stories like this on momentum and expensive prices. It makes sense in our view to consider it when there is a short-term ‘blip’ in the long-term story.”
India’s mobile-first population is accelerating adoption across fintech, digital services and AI-driven platforms, with payments, lending, cloud services, logistics tech, healthtech and SaaS benefiting from both domestic demand and global competitiveness.
“India’s demographic strength and rapid tech adoption are linked to where the most scalable investment opportunities are emerging … for international investors, this creates a multi-decade runway across fintech, AI and digital platforms that combine domestic growth with global competitiveness. We have recently seen significant investments by the likes by Google, Amazon, Microsoft, and Intel to capture this opportunity.”
Australian investment into India is expected to accelerate over the next three to five years.
“We expect allocations to shift from opportunistic or thematic exposures toward strategic, multi-year commitments. As India’s capital markets deepen and governance standards continue to improve, it becomes easier for large institutions to deploy scale capital with confidence,” Siva said.
Sectors likely to attract the most interest include financial services, digital infrastructure, manufacturing, healthcare and renewables, where India’s structural tailwinds align with Australian return objectives.
“The key shift is psychological as much as economic: India should move from being viewed as part of an “emerging market trade” to a structural growth allocation in global equity portfolios. That re-rating will drive sustained institutional flows from Australia in the years ahead.”
At Davos, Vaishnaw pointed to four pillars underpinning India’s growth: public investment in infrastructure, inclusive growth, manufacturing and innovation, and simplification. He said the government has removed 1600 old laws and more than 35,000 compliances to modernise frameworks.
Siva said governance quality and regulatory navigation still vary widely, requiring discipline rather than hesitation.
“Engagement with local stakeholders is essential. India requires investors to build relationships with management teams, regulators, industry bodies, and on-the-ground specialists who understand regional nuances. Partnering with local experts helps bridge gaps in regulation, culture, and execution. From our experience, communication between parties involved needs to be clear and cultural differences understood, rather than scorned.”
Environmental challenges remain, but Siva believes they also create opportunities in clean energy, water management and energy-efficiency technologies.
“Ultimately, India rewards investors who understand and price risks, partner with local investment specialists and focus on businesses aligned with the country’s long-term development and growth trajectory.”
