Amidst the backdrop of one of the world’s fastest-growing economies, robust corporate earnings, and an unprecedented retail investing surge, India’s equity benchmark is on the verge of reaching an all-time high. As Prime Minister Narendra Modi prepares to showcase India’s growing prominence to world leaders at the Group of 20 (G-20) summit in New Delhi this weekend, the country’s record stock market valuation and surging foreign investments create a compelling narrative.

These milestones stand in stark contrast to many emerging-market peers, particularly neighboring China, which has been grappling with economic challenges and financial market struggles that have frustrated global investors. India’s appeal has only grown as a result of these issues. Developing-market money managers are increasingly overweight on India in their Asia portfolios, considering it a “safe haven” while simultaneously underweighting China, according to analysts at Goldman Sachs Group Inc.

Audrey Goh, an investment strategist at Standard Chartered Bank SG Ltd., attributes the outperformance of Indian equities to strong domestic growth prospects, ongoing policy reforms, robust credit growth, and the government’s efforts to make India a more attractive destination for business.

India’s stock market recently reached a record valuation of $3.8 trillion, providing an ideal platform for PM Modi to showcase the nation’s potential on the global stage. As Western countries seek to diminish China’s influence, PM Modi has implemented a combination of tariffs and incentives to attract companies to invest in India, with companies like Apple Inc. and Samsung Electronics Co. expanding their operations in the country.

Foreign investors have poured over $16 billion into Indian stocks on a net basis in 2023, marking the largest inflow in three years. This stands in contrast to other Asian emerging markets, where overseas funds sold shares amid a global selloff. In August, onshore Chinese stocks experienced a record outflow as Beijing’s efforts to restore market confidence failed to quell persistent concerns over a property crisis.

Renowned market strategist Chris Wood of Jefferies LLC expressed his strong preference for India as an investment destination in Asia, foreseeing robust corporate earnings growth driven by a resurging private investment and real estate cycle. India’s stock market has nearly tripled in value since the pandemic low in March 2020, making it the world’s fifth-largest stock market.

However, investors should be aware of potential risks on the horizon for India, including resurgent crude oil prices that could exacerbate inflation, a general election in April-May, and longer-term challenges related to infrastructure development, education standards, and job creation, particularly in the face of growing AI adoption.

While India’s growing appeal is evident, not all investors are rushing to increase their exposure. Some, like Aperture Investors, believe that India needs significant improvements in infrastructure and private-sector development before it can fully replace China in investment portfolios.

Nonetheless, the positive momentum is undeniable. The NSE Nifty 50 Index has outperformed the broader MSCI Emerging Markets Index by a significant margin, surging nearly 6% in dollar terms over the past three months.

Columbia Threadneedle Investments is among those heavily overweighting Indian equities, expecting India, along with countries like Indonesia, Mexico, and Poland, to benefit from the near-shoring trend as supply chains are relocated away from China. The investment firm also has a bullish outlook on Indian local-currency government bonds, dollar corporate debt, and the Indian rupee.

In the words of Gordon Bowers, an analyst at the firm, “On a relative basis, India could be the biggest winner.”