China’s economic growth may be slowing, but India’s is rebounding sharply, so investors might want to look at some mutual funds and ETFs with significant Indian holdings to take advantage of the trend.

The International Monetary Fund (IMF) predicts that India will be the fastest growing major economy in the world by 2016. Moody’s Investors Service recently noted that India’s growth rate for this year is likely to average around 7.5% — a number that is higher than forecast for similarly-rated peers.

That figure compares favorably with expected average growth rates of 6.8% and 6.3% for China this year and next. The research firm lists favorable demographics (such as a largely young population compared with China’s aging population), economic diversity, and high savings as pluses in favor of the country.

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“India is the inverse investment proposition to China,” says Michael Kass, vice president and portfolio manager at Baron Capital Management, a money management firm that has made several investments in India through its $1.53 billion Baron’s Emerging Markets Fund (BEXFX). Thus, India under-invested in its infrastructure, as China made enormous capital investments in its economy. As a result, China is suffering from the effects of over-investment such as deflation while India has the opposite problem — inflation.

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But, Kass points to the positives in India – a vibrant entrepreneurial culture, an appreciation of property rights, and a functioning judiciary – as proof that the country is evolving.

A number of sectors are poised to take off in India with the unshackling of its economy.

For example, the pharma and healthcare sector is particularly attractive to Baron funds because of growth prospects for Indian firms in the industry on the world stage.

“Indian scientists have a global competency but work for one-fifth the salaries of their German and American counterparts,” says Kass. The Indian pharma and healthcare industry is also expected to benefit from growth as patents expire and there is a shift towards generic molecules.

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Similarly, Indian prime minister Narendra Modi’s government is also busy rearranging the rubric of the banking industry.

In his budget this year, India’s finance minister Arun Jaitley reduced capital allocation by 41% from the previous year for public sector banks. This is expected to limit their capacity to provide loans and services to India’s burgeoning middle class.

Source: The Street