India Equity market on the rise

Besides overtaking China as the most populous country in the world recently, India is also seeing its equity market making big strides. India constitutes more than 15% of the MSCI Emerging Market Index. The Asian giant is also expected to drive one-fifth of global growth this decade with opportunities that will come from its demographic dividend, rising affluence and unique sector strengths. In terms of weight then the MSCI EM Index, India ranks second, right behind China.

“India is quickly becoming a market that is too large to ignore,” writes Anand Gupta, Portfolio Manager at Eastspring Investments.

In 2022, India’s Sensex Index outperformed China’s A-share and H-share market by 18.1% and 12.5% respectively. Some believed this happened because of foreign investors reducing their exposures in China due to its slowing economy and embattled property sector last year. However, the optimism over China’s reopening this year may cause foreign investor outflows from India.

Eastspring Investments believes that both India and China will benefit from foreign investor inflows as global investor risk sentiment improves towards emerging markets. “Global investors do not need to choose between the China and India equity markets. These markets offer opportunities in different sectors and can have complementary roles in portfolios,” Gupta opines.

However, the rising tensions between the US and China have allowed India to step up its foreign direct investment inflows. India has attracted global companies to establish manufacturing bases in the country through the production-linked incentive (PLI).

On India’s resilience, Gupta writes, “As India seeks to ride its multiple tailwinds, there are also challenges, such as the country’s high unemployment and sticky inflation. Nevertheless, despite these challenges, the resilience of the market and its growing weight in the MSCI Emerging Markets Index reflect the appeal of India’s structural story.”

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