Is India now a greater investment opportunity than China?

China has dominated headlines this year, having overtaken Japan as the world's second largest economy but is India poised to outdo them?

India has been overshadowed by China since the emerging markets growth phenomenon began around a decade ago but is now snapping at China's heels as the fourth largest economy, with Indian exports rising at a similar rate to China's.

Sam Mahtani, Emerging Equities manager at F&C, is confident that India can match China's prodigious expansion. "Over the next 10 years, UBS estimates economic activity in India will increase by around 8.5% a year, a rate comparable with China and beyond the global average. We think that this growth rate could be achievable if Indian policymakers start to undertake structural reforms in the economy".

Mahtani believes demographics are key - India's population of around 1.2 billion is growing rapidly and half are under 25 whereas China's government restrictions on family size means its population is ageing and therefore less dynamic in terms of purchasing power.

"The potential of India's massive consuming class is evident in the mobile telephone market, with ten million new subscribers every month - a pace that is outstripping China. Demand for electronic goods has also risen steeply as disposable incomes grow and dual income families become the norm," Mahtani explained.

Social and economic changes in India have led to a brisk acceleration in the savings rate, which may eventually filter down into financial assets. Moreover, India's government has demonstrated a deep understanding of economic and commercial expedients whilst company management teams are transforming Indian firms into truly global players.

For example, Reliance, India's largest company, is now ranked the eleventh largest oil and gas company globally. Over the next ten years it plans to break into the top five alongside BP, Shell and Exxon. Other names bursting onto the world stage include digital technology provider Infosys and Tata Consultancy Services.

As a fully fledged democracy, India is keen to sponsor the growth of wealth. Indeed, the recent large majority secured by the Congress Party has delivered the potential for accelerated reform, with the privatisation of India's huge public sector high on the agenda.

Whilst India historically lagged China in terms of infrastructure spend as a percentage of GDP, it is now catching up fast. Over the next five years, the government is committing an estimated US$500 billion to road, rail, port and other vitally needed upgrades. If the right legislation is put in place and managed effectively, this could represent the springboard for long-term economic growth rates in excess of China's.

Mahtani concluded: "With a hugely diversified stock market boasting some 4,000 listed companies and a rapidly evolving Indian economy, there is indeed vast scope for investors to tap into this unique potential".