To The Moon

According to U.N. projections, India's population is expected to reach an estimated 1.4286 billion people in 2023, surpassing mainland China's population of 1.4257 billion, which would make India the most populous country in the world. India not only has the potential to become the most populous country in the world, but it also boasts the largest young population aged between 15 and 24, with a staggering 254 million individuals. This youthful labor force could serve as a critical economic force, potentially driving growth and development for several decades to come. On the other hand, China's population is rapidly aging, with over 12% of its citizens aged 65 and above, compared to India's 6%. Moreover, China's population recently experienced a decline in 2022 for the first time in over 60 years. China's fertility rate is at a low of 1.28, while India's fertility rate is relatively higher at 2.05. As a result, the population of India is likely to surge ahead and widen the gap with China in the coming years. A larger working-age population usually correlates with higher economic growth, highlighting India's potential in this regard. However, India must still take the right steps to realize this potential fully. While India's economy has grown at an impressive 5.7% per year in the last decade, China has managed to outpace it with an even more impressive growth rate of 8.9% over the same period. In 2021, India's GDP per capita stands at $2,257, while China's is much higher at $12,556. This gap highlights that India still has a lot of catching up to do economically compared to China. One possible strategy for India to bridge the economic gap with China could be to focus on building up its manufacturing sector, as China did. India has primarily concentrated on services, and the world has come to rely on it for IT outsourcing. In contrast, China invested heavily in manufacturing and emerged as the global factory, boosting its economic growth. Despite other factors that may have influenced the outcomes, the divergent economic paths chosen by China and India have led to different results. China's focus on manufacturing has facilitated faster economic growth and higher wages for its citizens. While India may have initially missed the opportunity to develop its manufacturing sector as China did, it's not too late to make up for lost time. Moreover, the ongoing geopolitical tensions between the US and China have resulted in a global supply chain shift, providing India with a chance to capitalize on its manufacturing capabilities. The trend of manufacturing companies shifting to India is already underway, with Apple leading the way by convincing its key manufacturer, Foxconn, to establish factories in the country. With a target of eventually producing 25% of the world's iPhones, India is accounted for 10% to 15% of the production already. India's large population presents a massive opportunity for companies looking to tap into a burgeoning consumer market. As the world's most populous country, India offers a vast pool of potential customers for businesses to target. This potential is evident in the recent opening of Apple's first store in India, which was officiated by CEO Tim Cook. In 2022, Chinese smartphone manufacturers Xiaomi, Vivo, Oppo, and Realme dominated the Indian market, collectively accounting for 66% of the market share. Samsung Electronics followed with a 19% share. Apple's iPhones, on the other hand, had just four percent. This can be attributed to the relatively lower spending power of Indian consumers, particularly in comparison to markets like the US and China. With the establishment of manufacturing facilities in India, Apple could potentially reduce costs associated with importing and distributing its products, thereby making them more accessible and affordable to Indian consumers. Moreover, employing local workers and sourcing materials locally can help strengthen the company's ties with the Indian community, building goodwill and trust that could translate into increased sales. For now, I don't think iPhone sales will improve just because Apple Stores are established. Instead, it is more symbolic, and Apple is trying to send messages to different parties: to the US, Apple is saying that it is cooperating by reducing reliance on China manufacturing; to China, Apple is saying that it has another manufacturing base to turn to so play nice; and to India, Apple is saying it is investing here and help India grow the economy, please support. It could be possible that the missing manufacturing piece to India's economy can finally be patched. One way for investors to gain exposure to India's potential economic growth is through the iShares MSCI India ETF (INDA). This ETF has returned 16% in the past 5 years, outpacing the iShares MSCI China ETF (MCHI)'s 26% loss, despite China's faster economic growth. China's underperformance is likely due to deteriorating investor sentiment towards China. It is a perception issue and China’s economic growth remains strong and important to the rest of the world, with the possibility of overtaking the US to be the biggest economy. I think it is too early to write off China and India still has a lot to prove, even though it looks promising. Both China and India are classified as emerging markets. Emerging markets tend to have higher levels of volatility compared to developed markets mainly due to the political factor. As a result, investors tend to have less confidence in emerging markets and may sell their investments in these markets more quickly in response to any negative news or temporary issues. Even if you are bullish on India, I don't think it is prudent to make it a core part of the portfolio.