While global markets grapple with persistent inflation and geopolitical tensions, India’s domestic growth engine remains robust, bolstered by a substantial middle class, increased manufacturing capacity, and strategic policy reforms. The key to success will lie in identifying sectors that benefit from these structural tailwinds, which will ultimately drive investor returns.
The investment landscape for 2025 is being shaped by several transformative developments. First, India’s healthcare modernization is accelerating at a pace reminiscent of China’s transformation from 2007 to 2021, albeit with a critical distinction: it is being propelled by private enterprise rather than state intervention.
Second, the government’s $1.4 trillion infrastructure push is generating opportunities not only in construction but also across supply chains encompassing basic materials to smart-city technologies. Finally, India’s emergence as the world’s third-largest AI talent pool is attracting unprecedented investment in technology and digital services, indicating a shift from traditional IT services to high-value innovation.
Moreover, these sectors currently exhibit valuations that favour investors. Much of the rest of the market appears overvalued in recent years, prompting investors to concentrate on sectors that remain undervalued to mitigate downside risk. This strategic focus will enhance the portfolio’s risk-reward ratio. In this context, healthcare, IT, and infrastructure sectors stand out prominently.
Healthcare is Healthy
India’s healthcare sector is poised for a significant transformation akin to China’s boom from 2007 to 2021, driven by robust macroeconomic and demographic factors. Due to relatively low public healthcare spending compared to global standards, the private sector has developed substantial medical infrastructure over the past two decades.India’s pool of highly qualified medical personnel offers a competitive advantage. Additionally, compared to other Asian countries and Western nations, India is more cost-efficient. Surgical procedures in India cost approximately one-tenth of what they do in the US or Western Europe.Healthcare services are benefiting from several long-term structural drivers. Increasing urbanization and rising income levels are driving demand for higher-quality healthcare. Furthermore, increasing life expectancy and an aging population, along with the higher prevalence of non-communicable diseases (NCDs), are leading to the expansion of health insurance coverage and an influx of medical tourism, each of these elements contributing to overall sector growth.
The Indian healthcare sector is experiencing significant growth, with private equity and venture capital investments exceeding $1 billion in the first five months of 2024, representing a 220% increase from the previous year. In 2023, India’s hospital market was valued at $98.98 billion and is projected to grow at a CAGR of 8.0% from 2024 to 2032, potentially reaching an estimated $193.59 billion by 2032.
(Source: IBEF)
Based on the average age and GDP per capita, analysts believe India is at an inflection point in healthcare expenditure, akin to China’s position in 2007, which was followed by a prolonged increase in spending that continued until 2021. The hospital sector is expected to see a 12.6% revenue CAGR from 2024 to 2034, driven by overall economic growth, increased consumer healthcare spending, and population growth, which will, in turn, boost demand for hospital beds.
The Government of India plans to increase public health spending to 2.5% of the country’s GDP by 2025. India’s competitive advantage also includes a higher success rate for Indian companies in obtaining Abbreviated New Drug Application (ANDA) approvals. Additionally, India presents substantial opportunities in research and development as well as medical tourism. In summary, there are vast opportunities for investment in healthcare infrastructure in both urban and rural areas of India.
Building Materials – Steady Foundation
India’s wires and cables industry is experiencing robust growth, driven by significant infrastructure development, an expanding energy sector, telecommunications, and the rise of electric vehicles. The market is projected to grow at a compound annual growth rate (CAGR) of approximately 15% from 2023 to 2028, supported by government initiatives such as “Power for All” and investments in smart grids and renewable energy.
The Indian tiles industry, encompassing ceramic, vitrified, and other types of tiles, is also flourishing, with an expected CAGR of around 12% from 2023 to 2028. This growth is fuelled by rapid urbanization, an expanding residential and commercial real estate sector, and a growing trend of in-home renovations and interior design. Additionally, India’s cost-competitive and high-quality tile products are experiencing increasing demand in international markets.
Meanwhile, the plywood industry in India, which includes plywood, laminates, and veneers, is projected to grow at a CAGR of approximately 8-10% from 2023 to 2028. The booming construction sector, rising demand for furniture and interior decor, and the adoption of eco-friendly building materials are key drivers of this growth. The industry’s expansion is further supported by increasing exports.
In summary, India’s wires and cables, tiles, and plywood industries are witnessing significant growth driven by infrastructure projects, urbanization, and rising consumer demand. The government’s focus on housing, smart cities, and renewable energy is further propelling these markets, with leading companies expanding their capacities and innovating to meet both domestic and international demand.
Information Technology – Accelerating Ahead
The Information Technology (IT) sector in India serves as a key engine of growth, driven by a combination of a highly skilled workforce, a vibrant entrepreneurial culture, and supportive government policies. Contributing approximately 7.5% to the country’s GDP, the sector has evolved from its initial focus on software services and outsourcing to embrace advanced technologies such as Artificial Intelligence (AI), Data Analytics, Cloud Computing, and the Internet of Things (IoT).
India has long been a prominent player in the global IT landscape, thanks to its vast pool of talented professionals and a business-friendly environment. Many international companies outsource IT projects to Indian firms, which are leading providers of software development and maintenance services. Recently, the IT sector in India has increasingly adopted innovative technologies such as AI, cloud computing, and IoT. The government has introduced several initiatives to support the development of these technologies, and numerous Indian IT companies are making significant investments in these fields.
One of the key initiatives launched by the Indian government to support the IT sector’s growth is the Digital India program, which aims to provide broadband connectivity to all citizens and encourage the adoption of digital technology nationwide. Another significant initiative is the Software Technology Parks (STP) Scheme, a 100% export-oriented program designed to foster the development and export of computer software, including the export of professional services through communication links or physical media.
Overall, with favourable government policies, a large pool of skilled workers, and increasing demand for digital technologies, India’s IT sector is expected to continue its strong growth in the coming years. A report by Microsoft, Bain & Co., and the Internet and Mobile Association of India (IAMAI) reveals that India produces 16% of the world’s AI talent pool, ranking it as the third largest globally.
(The author Manish Jain is Managing Director, Bajaj Broking. Views are own)
