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India is expected to become the world’s third-largest economy by 2030, supported by strong economic and demographic fundamentals. With a projected gross domestic product (GDP) growth of 6.8% in the Financial Year 2024-25, driven by domestic consumption and investments, S&P Global Ratings expects India to retain its status as the fastest-growing major economy over the next three years. Investors are taking note of India’s stellar growth story and are now turning their gaze to the Indian market.
Favourable demographics give India a competitive edge. As per Macquarie Equity Research, India’s share of the working age population at 67% is higher than China or Brazil. The median age of 28 years is a decade less than in the US. This will provide a “winning formula for the next 15 years”, as per Sandeep Bhatia, Macquarie’s Head of Equities India. “India is an open and democratic country, which will soon have the world’s largest working-age population. This is expected to bring highly lucrative growth for the next 30-35 years or so,” he says.
The country’s prospects are further supported by its strong IPO market and the increasing number of companies shifting investment to India.
As per Veronique Erb of RBC BlueBay Asset Management’s Emerging Markets Equity team, Prime Minister Narendra Modi’s rise has supported the economy. “In the near decade that Modi has been in charge, India has seen fundamental structural reform, allowing it
to finally benefit from its positive demographics and intellectual capital,” says Erb.
India stock market – bigger than Hong Kong’s
In January 2024, with $4.33 tn, India’s stock market capitalisation has overtaken Hong Kong’s ($4.29 tn), according to Bloomberg data. This underlines the boom of Indian equities.
“The stock market remains as dynamic as ever, with a flourishing start-up scene,” opines Erb. She highlights infrastructure as a robust investment theme. “India has built more infrastructure in the last decade than in the previous 70 years. The pace of capacity addition is swift and is translating into efficiency gains as well as lower logistics costs. For example, in the last 10 years, 600,000km of optic fibre cable has been laid, which has resulted in a surge in mobile phone users from 300 million to 800 million, and the cost of internet data has become the lowest in the world”, Erb says.
Also, Macquarie underlines India’s need for good infrastructure. “It will take at least two decades of building to meet the growing capacity needs here,” explains Bhatia.
Renewables are the apparent investment case, given India’s goal to pursue net zero emissions by 2070 and its still heavy reliance on coal. Macquarie finds it thrilling that, as of July 2023, India’s clean energy sector not only boasts a combined installed capacity of 176.49 GW from renewable sources, including large hydropower but also stands as a commercially viable market with high-level backing. The asset manager emphasises that India’s solar and wind technologies have already reached a scale that presents proven commercial investment opportunities.
Artemis highlights India’s astonishing development of its digital infrastructure. “The adoption of digital IDs, a fee-free instant payment system, and low-cost bank accounts have dramatically improved financial inclusion, enabling smoother social benefit and bill payments and faster, easier loan applications,” says Natasha Ebtehadj, fund manager in Artemis ‘global select’ team. “All this is good for growth.”
Will the elections impact India’s growth story?
However, there are also potential potential setbacks and risks for India.
“Modi has a self-imposed age limit of 75, which he is fast approaching (at 74 years old). As such, there is always the risk of a lack of viable alternative or, more worryingly, that Modi decides to hold on to power and risks becoming ever more of a dictator, threatening the world’s largest democracy,” opines RBC’s Erb.
With nearly 950 million voters, India will hold the largest elections in history this year in April and May. Modi is seeking a third straight term.
Federated Hermes believes a Modi victory will continue India’s robust economic growth path of recent years.
“A continuation of the incumbent government should provide continuity in policies, offering stability and predictability to investors,” says Vivek Bhutoria, Portfolio Manager for Emerging Markets Equity at Federated Hermes.
“Key economic issues such as fiscal management, infrastructure development, taxation, and job creation feature prominently in election campaigns. Furthermore, the outcome of the elections could influence foreign investor sentiment towards India. A clear electoral mandate and a government perceived as pro-business and investor-friendly will likely attract foreign investment inflows, supporting equity markets and bolstering economic growth,” opines Bhutoria.
