Despite the Indian stock market already having high valuation ratios, India has implemented reforms and made good progress. Indian stocks have been gaining advantages to enter a diversified portfolio. India is also establishing itself as one of the most attractive emerging economies.
Key Takeaways
- India’s economic reforms, including tax simplifications and eased foreign ownership rules, have strengthened market stability and attracted investments.
- The country’s growing domestic market and shifting global trade dynamics position it as a key alternative to China for manufacturing and business expansion.
Table of Contents
India’s Business Climate Improving with Economic Reforms
A decade ago, India still struggled to handle periods of strong growth. Structural barriers meant that progress was accompanied by high inflation, with levels above 10% being common until 2014.
To make the economy more flexible, Delhi introduced a goods and services tax to replace a myriad of local taxes, contributing to the simplification of the tax system and facilitating trade between Indian states. Some barriers to foreign ownership of companies were also eased.
Together, these reforms contributed to creating a more business-friendly environment, a more stable economy, and more controlled inflation levels, even during periods of strong demand. Although there are still many reforms to be made, progress has been undeniable.
Finally, more recently, India’s pragmatic approach allows it to do business with the West while benefiting from cheap Russian energy.
India’s Growing Workforce and Market Strength
As global trade faces pressures, the importance of the domestic market increases. Given demographic growth, with India becoming the world’s most populous country and improvements in workforce training, India’s domestic market is an advantage.
Moreover, India is not a major exporter, and its trade balance tends to be slightly negative. As such, it has less to lose in a trade war than most emerging markets. At the same time, measures are being taken to attract investments.
With tensions and rising production costs in China, Western companies seek to diversify the supply chain, and India is trying to emerge as an alternative. While China’s production ecosystem is difficult to replicate, India offers much lower wages, and job creation will move more Indians out of subsistence farming and increase productivity.
At the beginning of this decade, the percentage of the population in agriculture was still above 50%, so the potential for improvement is enormous.
Time to Invest in India, But With Caution
India is still on the right path with reforms but faces more immediate challenges. The middle class is experiencing a period of uncertainty as wage growth slows and food inflation remains high.
The Delhi government announced income tax cuts to support families and keep the economy running. However, the room for additional budgetary measures is limited by public debt (82% of GDP is a high level for an emerging country).
To help the economy, India’s central bank has already made an initial cut to interest rates. However, further cuts are constrained by India’s interest rate differential with the US and Federal Reserve policy.
Although it has high valuation ratios, India is a promising and fast-growing market. The Bombay Stock Exchange is also relatively well-diversified in sectoral terms and is prepared to grow as the Indian economy continues to expand into new sectors, services, and technologies for hundreds of millions of consumers.
| ETF Name | ISIN | 5-Year Return (Annualized) | (TER) | Fund Portfolio | Volatility |
|---|---|---|---|---|---|
| Franklin FTSE India UCITS ETF | IE00BHZRQZ17 | 11.23% | 0.19% | 1,183.610 million EUR | 20.09% |
| Jupiter India Select L EUR Acc | LU0329070915 | 15.39% | 1.97% | 205.090 million EUR | 21.18% |
| iShares MSCI India UCITS ETF USD Acc | IE00BZCQB | 11.00% | 0.65% | 4,986.760 million EUR | 21.11% |
| Amundi MSCI India UCITS ETF EUR (C) | LU1681043086 | 10.26% | 0.80% | 183.860 million EUR | 21.14% |
| Mirae Asset ESG India Sector Leader Equity A USD | LU0336297295 | 11.03% | 1.75% | 13.440 million EUR | 21.46% |
