Fast growth and reforms: The bullish case for Indian equities

SUMMARY

India’s fast growth is well underpinned by economic reforms and a large, young population. Sure, its stock market is expensive, but the outlook supports this, say Steven Wieting and Cecilia Chen.


India has attracted increasing interest from international investors in recent years.

The country is widely considered to be well positioned as an alternative growth engine and investment destination within Asia as China deals with a sluggish domestic economy and ongoing geopolitical challenges.

India is also one of the few emerging markets that is likely to see meaningful population growth in the coming years and still enjoys high single-digit real GDP growth.

Citi Research economists are projecting real GDP growth of 6.2% and 6.1% in FY23 and FY24 respectively (vs 5% and 4.6% for broader Emerging Asia). Over the past decade, the Indian government has been proactive in promoting structural reforms, and it has doubled down on policy support for domestic manufacturing since 2020.

For suitable clients, we suggest a moderate overweight in India within Emerging Markets (EM) portfolios with the following considerations:

Indian equities are perennially expensive, but the premium is supported by consistent earnings outperformance in emerging markets, as well as growing interest from foreign investors.

Indian equities tend to be less correlated with China, more linked to the global economy.

Prefer sectors that enjoy potential benefits from macro tailwinds, like electronic manufacturing, fintech, e-commerce, industrials, healthcare, semiconductors and renewable energy.

We see currency risks as well-contained, however risks should be considered and understood when investing.

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Read some of our perspectives into the key issues for you and your wealth.

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