Indian Equities: Why Now Is The Time To Invest

India is an attractive prospect for investors, with its economy, policies, and technology making it one of the standout emerging markets. The country has a large, established equity market, with the Bombay Stock Exchange (BSE) in Mumbai founded in 1875, making it the oldest in Asia. Combined with the National Stock Exchange of India (NSE) and other local exchanges, the total market capitalization of the Indian equity market exceeds 4.3 trillion USD.

India's economy has grown remarkably over the past decade, with an estimated contribution of 17.6% to global GDP growth in 2023, compared to less than 8% in 2001. This growth is underpinned by various factors, including a large young consumer market, with an estimated 360 million Indian consumers below the age of 30 by 2030. India's digital infrastructure is expanding to meet the needs of these younger, more urban consumers, and the country already accounts for 43% of digital real-time payments worldwide.

The country's equity markets are deep and liquid, with a diverse range of stocks across sectors such as pharmaceuticals, IT services, industrials, and real estate. India's markets also have a low correlation with other major stock markets, making them an attractive addition to a global investment portfolio.

From a technological standpoint, India has harnessed digitalization to address the rural-urban gap and create new businesses and products in areas such as payments and e-commerce. The government's India Stack platform, which includes a universal biometric digital ID system, has enrolled 99% of the population, providing access to education, healthcare, welfare subsidies, and financial services.

With a growing economy, improving infrastructure, and a supportive government, India offers a range of investment opportunities across sectors.

India's large, deep equity market

India's equity market is one of the largest and deepest in the world. The Bombay Stock Exchange (BSE) in Mumbai, the largest Indian exchange, was founded in 1875 and is the oldest in Asia. Combined with the National Stock Exchange of India (NSE) and other local exchanges, the total market capitalisation of the Indian equity market exceeds 4.3 trillion USD (as of 31 December 2023), making it the fifth-largest worldwide and the second-largest among emerging markets (after China).

The market capitalisation of Indian equities is equivalent to 70% of the Japanese market capitalisation and 63% of the market capitalisation of the exchanges combined within Euronext. In the context of emerging markets, India accounts for approximately 16.3% of the total market cap of MSCI Emerging Markets, a proportion that has steadily grown over the past decade.

Over 170 stocks listed on Indian exchanges enjoy a market capitalisation of over 5 billion USD (the fourth-highest figure worldwide). They have a high level of daily turnover. Over 250 stocks average a daily turnover above 10 million USD—a figure only surpassed by the Japanese, US and Chinese equity markets.

The Indian equity market is supported by the development of a local equity culture. Investing in mutual funds has become a key part of financial planning for millions of Indians. In 2023, domestic investors (DIIs) invested 22 billion USD into Indian equity markets, marking their second-highest annual inflow after hitting a high of 36 billion USD in 2022. This was the third straight year of DII inflows surpassing foreign investor (FII) flows.

Strong economic growth

India's economic growth over the past two decades has been impressive. The country's real GDP growth rate has averaged 6-7% annually, outpacing many developed and emerging markets. This growth is supported by various factors, including favourable demographics, digitalisation, and infrastructure development.

India has the largest young consumer market in the world, with an estimated 360 million consumers below the age of 30 by 2030. This growing and increasingly affluent population is driving domestic demand and making the country more attractive to companies, both domestic and foreign.

India has also made significant strides in digitalisation, with 43% of digital real-time payments worldwide already taking place in the country. The government's creation of a decentralised digital infrastructure platform, known as the "India Stack," has been pivotal in digitally transforming the economy. For example, India's universal biometric digital ID system, Aadhaar, has enrolled 99% of the population, enabling access to education, healthcare, welfare subsidies, e-commerce, and financial services.

Additionally, investments in infrastructure are contributing to more fluid trade within India and across its borders. The country's national highway network has doubled over the past decade to 155,000 km, enhancing physical mobility, productivity, and international competitiveness.

The combination of these factors—a growing and increasingly wealthy population, digitalisation, and improved infrastructure—creates a favourable environment for economic growth and makes India an attractive destination for investors.

Demographic advantage

India's demographic advantage is a key factor in its economic growth and makes the country an attractive prospect for investors. India has the largest young consumer market in the world, with an estimated 360 million consumers below the age of 30 by 2030. This expanding, working-age population is expected to help propel the next leg of India's economic growth, making the country more attractive to domestic and foreign companies.

The country's growing population is also becoming wealthier, driving domestic demand. India's GDP growth rate has averaged 6-7% annually over the past 20 years, higher than many developed and emerging markets, and this trend is expected to continue. The country's economic growth is supported by the current administration's focus on pro-growth reforms, including bankruptcy code reform, corporate tax cuts, and reduced caps on foreign ownership in major sectors.

India's large, young population also makes it an attractive hub for global supply chains. The country's manufacturing capacity is becoming more competitive with East Asia due to lower tax rates for manufacturers. For example, Apple has been ramping up iPhone production in India and plans to produce over a quarter of new iPhones in the country. Additionally, India's young, well-educated, and inexpensive labour force is a draw for pharma, electronics, and auto manufacturers.

India's demographic advantage is further enhanced by its focus on STEM education, with 34% of Indian graduates in STEM subjects, a higher proportion than in many other countries. This contributes to a highly skilled workforce, generating employment opportunities and the potential for wealth creation.

In summary, India's demographic advantage, characterised by its large and growing young population, makes the country an attractive prospect for investors, with the potential for strong economic growth and a skilled workforce to support business and industry.

Technological prowess

India has harnessed the power of digitalization to lift up its economy and people, helping to address the rural-urban gap and create efficiencies. This has opened the door to new digital businesses and products, including payments and e-commerce.

The government has created a decentralized digital infrastructure platform, known as the "India Stack," which is helping to digitally transform the economy. One example is India's universal biometric digital ID system, Aadhaar, which has enrolled 99% of the population. This system allows anyone in the country to use a fingerprint or iris scan as a unique identifier, even if they can't read or write or don't have a physical address. This gives all Indians access to education, healthcare, welfare subsidies, e-commerce, and financial services.

India's digitalization is a real differentiator. It's inclusive, free, and doesn't require users to have a certain app.

India's equity markets represent a diverse universe of stocks. Beyond the well-known sectors of pharmaceuticals and IT services, Indian cyclicals like industrials and real estate are on the ascent, benefiting from the post-COVID recovery and geopolitical factors. Domestic consumer stocks and disruptive innovators are also benefiting from demographic and digitalization trends.

The breadth and diversity of the Indian stock markets offer plenty of opportunities for stock pickers.

Strong corporate earnings

Corporate earnings are starting to reflect India's high GDP growth. Indian companies saw double-digit earnings growth in 2023, and analysts predict this trend will continue.

The market reflects the economy, with banks as the backbone of the industry. Financials make up more than a quarter of India's investable universe. India's banking reforms and the clean-up of bank balance sheets have created strong banking and opportunities for investors.

The country's expanding, working-age labour force could also help propel the next leg of economic growth. This demographic advantage makes India more attractive to domestic and foreign companies. People are also becoming wealthier, driving domestic demand.

India is revitalising its manufacturing capacity with lower tax rates for manufacturers, making the country more competitive with East Asia. For example, Apple has been ramping up iPhone production in India and plans to produce over a quarter of new iPhones there. Auto manufacturers are also moving to increase production in India. Pharma, electronics, and other producers are drawn to India's location and tax incentives, as well as its young, well-educated, and inexpensive labour force, and growing middle class.

India's labour force is projected to grow, while others stagnate or shrink. It is estimated that by 2030, there will be 360 million Indian consumers below the age of 30.

India has harnessed digitalisation to lift the broad population and economy, beginning to address the rural-urban gap and create efficiencies. The government has created a decentralised digital infrastructure platform, "India Stack", which is helping to digitally transform the economy. For example, India's universal biometric digital ID system, Aadhaar, has enrolled 99% of the population. This lets anyone in the country access education, healthcare, welfare subsidies, e-commerce, financial services, and more.

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