Investment Strategy

Why now may be a good time to consider Indian equities

We receive a flood of inquiries about emerging and global markets and see many bright spots. India's economy, policies and technology make it one of the standouts. Managing Director Rashmi Gupta, a J.P. Morgan Private Bank Portfolio Manager, explains why.

You’re bullish on Indian equities, within a broader, long-term emerging markets portfolio. Why?

Rashmi Gupta: We think India is on the cusp of a new era, as it benefits from wide-ranging pro-growth reforms.

India’s real GDP growth rate of the past 20 years has averaged 6%–7% annually.1—which is higher than many developed and emerging markets—and we expect this trend to continue. Why do we think so?

The administration of Prime Minister Narendra Modi has focused on supporting economic growth, reducing the fiscal deficit and improving companies’ ease of doing business. Pro-growth policies include bankruptcy code reform, corporate tax cuts and reduced caps on foreign ownership in major sectors. Increased tax collection2 is allowing for investment in high-speed rail, subways, port-to-railway connections, etc. to further drive economic growth. Infrastructure development is an area where India had lagged. The Reserve Bank of India has revamped monetary policy to focus on reducing the risks to the Indian rupee and to stabilize inflation, measures to improve macroeconomic stability and support growth.

India’s expanding, working-age labor force could also help propel the next leg of economic growth. This demographic advantage makes India more attractive to domestic and foreign companies. People are also becoming wealthier, driving domestic demand.

Significantly, India is also one of the biggest beneficiaries of a geopolitical shift: the diversification of global supply chains. Geographically, India is a hub in Asia. It’s also a democracy, which is attractive to certain governments, including the United States.

How does this backdrop connect to potential investment returns?

GUPTA: Corporate earnings are starting to reflect India’s high GDP growth. Indian companies saw double-digit earnings growth in 2023, and the consensus among analysts is that this trend should continue. 

Some equity markets don’t reflect the real economy—technology drives U.S. market returns, even though consumption dominates the economy. In India, the market really reflects the economy. For example, banks are the backbone of the economy and financials make up more than a quarter of India’s investible universe. India’s banking reforms and the clean-up of bank balance sheets have created a strong banking picture and opportunities for investors.

How is India poised to be a winner as supply chains diversify?

GUPTA: India is revitalizing its manufacturing capacity as lower tax rates for manufacturers make the country more competitive with East Asia. Take Apple as an example: it’s been ramping up iPhone production in India and plans to produce over a quarter of new iPhones in India. Auto manufacturers are moving to increase production in India. We’re seeing more pharma, electronics and other producers drawn to India’s location and tax incentives—and to its young, well-educated and inexpensive labor force, and growing middle class.

India’s labor force is projected to grow, while others stagnate or shrink

Estimated change in working age population between 2018 and 2028

The bar chart shows the projected change in working age population from 2018 to 2028 across 10 countries: India, Indonesia, Philippines, Brazil, United States, Vietnam, Thailand, Russia, China, European Union. India stands out as having the largest increase in working age population.
Source: World Bank; data as of July 5, 2023. Working age population: age 15–64. Population is based on the de facto definition of population, which counts all residents regardless of legal status or citizenship.

How does India being a technological powerhouse fit in?

GUPTA: India has harnessed digitalization to lift up the broad population and economy, to begin addressing the rural-urban gap and to create efficiencies—opening the door to new digital businesses and products, including payments and e-commerce.

The government has created a decentralized digital infrastructure platform, known as the “India Stack,” that is helping digitally transform the economy. One example: India’s universal biometric digital ID system, Aadhaar, has enrolled 99% of the population.3 You can use a fingerprint or iris scan as a unique identifier, even if you can’t read or write or don’t have a physical address. It lets anyone in the country access education, healthcare, welfare subsidies (with far less slippage), e-commerce, financial services and more. India’s digitalization is a real differentiator. It’s inclusive, free and doesn’t require having a certain app.

What should people know about India’s equity markets?

GUPTA: They’re deep, liquid, mature and well diversified across sectors and company types. The market tends to have a growth tilt, which makes sense for an emerging markets with an elevated growth outlook and opportunities driven by domestic consumption. But it also offers value- and commodities-tilted opportunities. We see opportunities across large, small and mid-caps. And retail flows into domestic mutual funds, by Indian investors, are strong.

But the attractive earnings are the most important thing for us. We also see a lot of room for return on equity to improve. Companies have been focused on boosting margins and earnings.

Alongside the opportunities, what are the risks?

GUPTA: There are risks, and so diversification is always important. We do see opportunities across other emerging markets.

One of the main risks is Indian equities’ premium valuation vs. history, and vs. other emerging markets, although it’s not at extreme highs (and we think the fundamentals support these levels). India’s markets can also be sensitive to rises in rates.

India will hold presidential and state assembly elections in April and May, and a big change in leadership would pose a market risk, given that our investment case is so predicated on a growth-friendly administration. But we believe the market is pricing in continuity for Modi and his party.

The other risks to consider apply to all global markets, such as the possibility of a deep recession in the U.S., and energy price, or other, external shocks.

How could Indian equities fit into an investor’s approach to emerging markets?

GUPTA: We recommend a balanced approach. While we have been overweight India for some time, other emerging markets equities also offer strong expected returns and earnings, different drivers of returns and less expensive valuations. It’s important for portfolios to have diversified return and risk drivers and positions with low correlations to each other.

We consider India a more defensive market that is appropriately paired with other emerging markets that trade at deeply discounted valuations—for example, Brazil and Mexico.

Closing thoughts, Rashmi?

GUPTA: We think India is among the most attractive long-term opportunities, as part of a diversified global equities portfolio. India offers: 1. Meaningful pro-growth policy support, 2. Unique demographic tailwinds supported by a young, well-educated and inexpensive labor force, and 3. Superior economic and earnings growth potential. While many investors focus on the risks of deglobalization, we believe India can and may be a big winner as global companies look to diversify their supply chains. Investing in India comes with risks, so diversification can help. We like to invest in India as part of a broad multi-country emerging markets strategy. Now might be a good time to take a look.


Could Indian equities be an appropriate addition, as part of your diversified portfolio? Reach out to your J.P. Morgan Private Bank team to learn more.

1India Annual GDP Constant 2011-12 Prices YoY, Central Statistics Office India, January 2023.

2After another major reform, the simplified Goods and Services Tax (GST).

3Mahendra Singh, “99% of Indians over 18 now have Aadhaar cards,” Times of India, January 28, 2017.

From economics to technology, geopolitics to demographics—India and its markets are on the cusp of a new era.

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