India: the next global growth engine
India's stockmarket is booming, up by 37% so far this year, and the BSE Sensex index has delivered an annualised return over the last five years of more than twice that of the FTSE 100.

“India’s equity market is on the cusp of overtaking” Britain’s, say Abhishek Vishnoi and Swetha Gopinath on Bloomberg. India’s market capitalisation stands at $3.46trn and has soared by 37% so far this year. India is fast closing in on the UK’s $3.59trn market value. The benchmark BSE Sensex has delivered an annualised return of 15% in dollar terms over the past five years, more than twice the FTSE 100.
Equities boom
The BSE Sensex has gained 26% since the start of the year. It surpassed the 60,000-level for the first time last month. The rally has been powered by a listings boom, says Dev Chatterjee in Nikkei Asia.
“Companies as varied as edible oil sellers and hotel-booking apps” are jumping into the “Great Indian IPO [initial public offerings] Rush”. So far in 2021 firms have raised Rs669bn (£6.53bn), compared with 266bn (£2.6bn) during the whole of last year. There are plenty more IPOs waiting in the wings.
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No wonder investors are excited, says
Jeff Prestridge in The Mail on Sunday. Almost half of India’s 1.3 billion people are aged under 25. The middle class is forecast to grow from 50 million today to 475 million by 2030. Wage costs are just one-third of those in China, part of the reason Apple plans to move one fifth of its production capacity from China to India.
Concerns about Chinese regulation and real estate have redirected large amounts of investors’ capital towards India, says Bhaskar Chakravorti in Foreign Policy. The world’s second-biggest digital market is growing fast: “data traffic in the country has grown around 60 times over the past five years”. Yet this sudden rush of “hot” investment money risks creating a bubble: local and foreign investors pour funds in for fear of missing out, only to take fright later and trigger a huge crash.
Is there turbulence ahead?
Strong growth prospects come at a price. India is trading on a cyclically adjusted price/earnings (Cape) ratio of 33.8, according to Mebane Faber of Cambria Investment Management. That is almost as expensive as America and more than double the equivalent figure for the UK.
Pricey stocks raise the risk of volatility, says David Brenchley in The Sunday
Times. “The Indian stockmarket can be very turbulent. Falls of between 20% and 30% are not unusual.” Still, high valuations partly reflect the fact that Indian companies are of higher quality and more profitable than those in many other emerging markets.
Bargain-hunting investors have ignored India at their cost, says Praveen Jagwani in Nikkei Asia. The MSCI India index has returned a cumulative 124% over the past decade in dollar terms, compared with 66% for emerging markets as a whole.
Good demographics, a reform-minded government and geopolitical tailwinds leave India poised to emerge as the next big “engine of global growth”. MoneyWeek’s favourite India play is the Aberdeen New India Investment Trust (LSE: ANII).It is currently trading on a 13% discount to its net asset value.
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