Apple's latest moves in India underscore data showing it's primed to be the next China

Published Fri, Dec 8 20231:06 PM ESTUpdated Fri, Dec 8 20231:20 PM EST

Apple 's big push into India to capitalize on its fast-growing economy and to rely less on China is starting to take shape. Two new reports detailed possible moves on the supply-chain side. Late Thursday, a Bloomberg report said that Mumbai-based Tata Group wants to build an iPhone plant with about 20 assembly lines and some 50,000 employees in the southern part of India. The report said Tata hopes to have the facility up and running in 12 to 18 months. On Wednesday, the Financial Times said that Apple wants to build iPhone 16 batteries in India. The news follows record sales in India in the tech giant's latest quarter. On the post-earnings call last month, CEO Tim Cook called India an "incredibly exciting market" and said the company's new retail stores there are doing better than expected. Other major companies — including Club names Alphabet 's Google, Microsoft , Amazon and Honeywell — are also looking to India as the next big growth market. But how real is the opportunity there? Is India the next China? A good place to start answering those questions is to compare the two most populous nations on Earth — specifically looking at shifts expected in demographics, purchasing power, and economic growth. Earlier this year , the United Nations estimated that India's population would overtake China in 2023. While both nations have 1.43 billion people each, India's economy is about 16½ years behind China's economy, according to a median estimate of an analysis of various economic indicators in a recent Bernstein note. To further exemplify the business potential in India, China's economy is now about six times larger than it was in 2006, or about 16½ years ago. Apple, for example, saw the potential in China decades ago and moved its manufacturing there. The Silicon Valley darling, which opened its first store in China in 2008, cut the ribbons on its first two stores in India this past spring. Last month, Apple supplier Foxconn detailed plans to invest an additional $1.5 billion in India to meet what it called "operational needs." Closures and disruptions at Foxconn factories in China during Covid caused disruptions for Apple, causing the tech giant to consider supply-chain diversification, which also includes a ramp-up of production capabilities in Vietnam. Taking into account economic dynamics and the years of strained relations between Washington and Beijing, it's no surprise that American companies are moving away from China a bit and seeking opportunities in India, which boasts one of the fastest-growing economies in the world. Currently, China's $17.7 trillion economy is No. 2 behind the United States' nearly $27 trillion economy, according to the International Monetary Fund . India's $3.7 trillion economy is the fifth largest in the world. Demographics Starting with demographics, our focus is on household income — and specifically, the rise of the middle class. That population gives us the best sense of the opportunity for companies because it represents new buyers moving up the ladder and gaining more disposable income. According to a leading think tank, People Research on India's Consumer Economy (PRICE), India's income distribution breaks down into four cohorts: Rich, middle class, aspirer, and destitute. The middle class in India is expected to grow from 432 million (about 31% of the economy) in 2020/2021 to 715 million (roughly 47%) in 2030/2031 and to nearly 1.02 billion (about 61%) by 2046/2047. At the same time, the rich are expected to grow from 56 million (about 4% of the economy) in 2020/2021 to 169 million (about 11%) in 2030/2031 and 437 million (about 26%) by 2046/2047. Between these two cohorts, we'll see a targetable market for discretionary goods grow from about 35% of India's population in 2020/2021 to nearly 48% in 2030/31 and to about 87% in 2046/2047 – all while the country's lower-income cohort shrinks in size. On an absolute basis, that amounts to about 884 million potential consumers in 2030/2031 growing to over 1.4 billion by 2046/2047. Also working in India's favor is the median age of the country, which according to the U.N., stands at 28.2 years old. That's more than 10 years younger than China's average age of 39 years old. For comparison, the United States' median age is 38.9 years old, according to the U.S. Census Bureau. Purchasing power Brookings also took a stab at trying to figure out when India might look more like China in terms of economic power, conducting an analysis of key drivers from 2019 and projecting out to 2044. The conclusion: India would achieve purchasing power parity with China in about 21 years. "This means that per-capita growth rates in India should be higher than China on a sustained basis," the report added. A closer look at labor trends and human capital best exemplifies the projected ascendancy of India ahead and the leveling-off of China. India's labor force is expected to outgrow China over the next 25 years at a rate of 1.8% per year versus a 0.7% annual decline from China. That's a 2.5% delta. A key reason for this divergence is India is starting out with a much lower participation rate, in large part, due to significantly fewer women in the workforce. But that low female participation rate – currently 25% to 35% – is changing and expected to reach at least 50% over the next two decades. China's female labor force participation rates stands at a whopping 70%. With about 43% of female Indian college graduates coming from the science, technology, engineering and mathematics (STEM) disciplines, they may well prove to be the country's secret weapon as far as labor is concerned. Economic growth In addition to this favorable shift in wealth, a recent report from S & P Global Ratings estimates that India will expand faster than China in the coming years. The S & P analysts project China's gross domestic product growth to slow from 5.4% in 2023 to 4.6% in 2024, bounce a bit to 4.8% in 2025 and come back down to 4.6% in 2026. India, on the other hand, is expected to see its GDP growth rate accelerate to 7% in 2026, up from 6.4% in 2023. India also generates a significantly higher percentage of GDP from consumption than China – about 71% versus about 53% – an important factor for corporate sales. That brings us to August report from Bernstein, which asks the question, "Can India repeat China's 3-decade miracle?" After an in-depth, historical look at the differences and similarities of various economic indicators between China and India, the analysis yielded that median estimate of 16½ years, which was mentioned earlier. Looking at some of the specifics, Bernstein believes India is about 15 years behind where China is right now in terms of nominal GDP and per capita income and about 13 years behind in consumption expenditure. Patents in India, however, are about 21 years behind China while foreign direct investment is about 20 years behind. However, given the advancements we're seeing in artificial intelligence, we wouldn't be surprised if India were able to pick up the pace, with some targeted efforts by the Indian government and support from multinationals, such as Apple and Foxconn, and domestic giants like Tata Group. Bottom line No matter how you look at it, we think companies are right to be investing in India. Comparisons to China aside, the country clearly has a massive runway for growth ahead. The population is massive, young, growing, and becoming wealthier. As Indians move up on the socioeconomic later, their buying power will increase and with it demand for goods and services. From a geopolitical and national security perspective, it also makes sense to diversify supply chains out of China. Even if tensions subside for a while, it's clear that China will always be a so-called frenemy – after all, the runner-up in any race is always going to be gunning for the No. 1 spot. While the manufacturing of certain goods such as personal protective equipment and semiconductors should be brought back to the U.S., it's unrealistic to think that everything we buy will be Made in America or have a 100% U.S.-based supply chain. So, it seems to us that India is a natural choice for companies that don't want to depend on China as much and want to capitalize on a fast-growing economy that is nowhere near its expected potential. (Jim Cramer's Charitable Trust is long AAPL, GOOGL, MSFT, AMZN, HON. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. 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Apple's first physical retail store is located in the populous city of Mumbai.

Punit Paranjpe | Afp | Getty Images

Apple's big push into India to capitalize on its fast-growing economy and to rely less on China is starting to take shape.

Two new reports detailed possible moves on the supply-chain side. Late Thursday, a Bloomberg report said that Mumbai-based Tata Group wants to build an iPhone plant with about 20 assembly lines and some 50,000 employees in the southern part of India. The report said Tata hopes to have the facility up and running in 12 to 18 months. On Wednesday, the Financial Times said that Apple wants to build iPhone 16 batteries in India.

The news follows record sales in India in the tech giant's latest quarter. On the post-earnings call last month, CEO Tim Cook called India an "incredibly exciting market" and said the company's new retail stores there are doing better than expected.

Other major companies — including Club names Alphabet's Google, Microsoft, Amazon and Honeywell — are also looking to India as the next big growth market. But how real is the opportunity there? Is India the next China? A good place to start answering those questions is to compare the two most populous nations on Earth — specifically looking at shifts expected in demographics, purchasing power, and economic growth.