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Should I invest in India?

28/06/2024

While the US and China are the world’s largest economies by GDP by a large margin, other nations are showing significant growth. 

One of these is India, whose GDP stands at $3.385 trillion, with a growth rate of 7%. 

While the country may not be as large as China in terms of the size of its economy, it now makes up 18% of the MSCI Emerging Markets Index thanks to its stock market value rocketing since 2020. So, should investors consider Indian stocks? 

 

A sizeable domestic market

India’s economic reforms are helping to fuel growth – as is its relatively young population. The nation’s domestic market is enormous, which stands it in good stead should the world become less globalised over time. 

In April, the International Monetary Fund predicted that India will have real GDP growth of 6.8% in 2024-2025. But is the stock market worth a look for international investors? 

 

The Indian stock market

Morningstar claims that, in the first quarter of 2024, over £2.58 billion was invested in ETFs that specialise in Indian equities. They also highlight that, apart from Q1 2023, the net inflows for equity funds specialising in India have been positive since Q3 2022. 

In June 2024, India’s Nifty 50 index and S&P BSE Sensex both reached record highs. It is forecast that the Reserve Bank of India will keep the country’s interest rates the same until at least Q4, giving investors some sense of stability in the short term.

Unlike the other BRIC countries, India has avoided any tensions with the western world – and with a stable government that has focused on economic reforms that benefit the stock market – there appear to be plenty of reasons to be confident in India. 

But what are the downsides? 

 

The risks of investing in India

While the economy is booming, Indian stocks are currently valued very high. For investors, this means high purchase prices – and realistically, how much room is there for further growth? 

India also imports more goods than it exports: a trade deficit which has meant that the rupee has become weaker over the years. For overseas investors, this could have an impact on any returns from Indian assets. However, India’s long-term growth potential is appealing – and is likely to continue to appeal – to many overseas investors. 

 

“Stable Rise Limited is not authorised or registered by the Financial Conduct Authority. The marketing materials are not intended to provide financial advice nor promote any individual financial products.”

 

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