India is projected to grow between 6.5% and 7.8% in the fiscal year concluding in March 2026, according to forecasts from the Asia House Annual Outlook and Deloitte, positioning it as the fastest-growing major economy in Asia and a primary beneficiary of the supply chain diversification trend that has intensified under successive rounds of U.S.-China tariff escalation. The growth rate reflects resilience across multiple sectors, including services, manufacturing, and infrastructure, supported by easing inflation, policy-driven demand support, and continued strength in domestic consumption.
The supply chain narrative has moved from aspiration to measurable capital commitment. India’s semiconductor mission, which has approved 10 projects under government incentive programs, represents one of the most visible manifestations of the country’s push to capture manufacturing investment that might previously have flowed to China. The broader pattern extends across electronics assembly, automotive components, pharmaceutical manufacturing, and textiles. Multinational companies pursuing a “China plus one” or “China plus many” strategy have increasingly identified India as a primary diversification destination, attracted by its large domestic market, English-speaking workforce, democratic governance, and improving infrastructure.
Trade policy developments have reinforced India’s positioning. An India-EU trade deal announced toward the end of January provided a significant diplomatic and economic milestone, reducing tariff barriers on a range of goods and services and signaling Europe’s strategic interest in deepening economic ties with New Delhi. The agreement came alongside ongoing negotiations with the United States, where India has faced tariffs as high as 50% on certain product categories during 2025. The prospect of a bilateral trade agreement with Washington, which both sides have characterized as a priority, could further accelerate foreign direct investment flows into Indian manufacturing and services sectors.
J.P. Morgan’s 2026 Asia Outlook has flagged India as a standout within the region, citing strong domestic demand, improving real wage dynamics, and sustained government spending on infrastructure. The Reserve Bank of India’s monetary easing cycle, which has delivered 125 basis points of cumulative rate cuts from 6.5% to 5.25%, has supported credit growth and consumer spending. With inflation running near the lower bound of the RBI’s mandate at approximately 2%, additional policy accommodation remains available if external shocks, such as tariff escalation or commodity price volatility, weigh on growth momentum.
Equity market valuations, however, have adjusted to reflect the improved outlook. Indian equities have traded at premium multiples relative to most Asian peers for several years, a dynamic that has led some investors to characterize the market as “priced for perfection.” Foreign institutional investor flows have been volatile, with periodic outflows driven by global risk-off episodes and concerns about crowded positioning. The market’s performance in the first quarter of 2026 will depend partly on how effectively India navigates external risks, including the unfolding geopolitical situation in the Middle East, which has begun to affect oil prices and, by extension, India’s current account dynamics.
Vietnam, the other regional outperformer projected to exceed 6% growth in 2026, presents a complementary diversification opportunity. The country’s rapid GDP expansion has been driven by manufacturing FDI, rising household consumption, and government programs to accelerate SME digital adoption. Together, India and Vietnam represent the most compelling structural growth stories in Asia for investors seeking alternatives to China exposure, though each carries its own risk profile. India’s bureaucratic complexity and infrastructure gaps, while improving, remain significant operational challenges for foreign investors. Vietnam’s smaller domestic market and tighter labor pool constrain the scale of manufacturing investment it can absorb relative to India or China.
For portfolio managers allocating to emerging Asia, India’s combination of above-trend GDP growth, proactive industrial policy, and improving trade access creates a favorable medium-term investment environment. The semiconductor mission, in particular, warrants monitoring as a potential catalyst for the next wave of manufacturing FDI, with projects in various stages of development across multiple states. The broader narrative of supply chain rebalancing away from China shows no signs of reversing, and India’s ability to absorb an increasing share of that reallocated capital will be a defining factor for regional investment flows through the remainder of the decade.
