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Why India is ‘hot’ right now

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A lot is going on for India. If you want to start investing or expand your investment portfolio, this is the time. If market pundits are to be believed, India is headed for a structural upswing. There is a lot of literature on the opportunity India presents as an investment destination. For example, Morgan Stanley, a global investment bank, announced that India was the top investment destination in Asia, excluding Japan. The bank looks at the expanding nature of purchase managers indices (PMI) for manufacturing and services, India’s fast-growing real estate sector, and favourable trade data to put the India story in play. India’s composite purchases managers index was at a 13-year high in July 2023. That indicates the most robust expansion of services and manufacturing sectors then. 

The Reserve Bank of India continues to see resilience in the Indian economy. Agriculture production is also likely to be normal with normal monsoons in the year. RBI continues to see the inflation threat lurking in the latest monetary policy but observes strong industrial expansion. It also highlights expansion in other high-frequency indicators like e-way bills generated for GST payment by transporters and rising toll collection at national highways as contributors to the resilience of the Indian economy. RBI also observes strong growth in urban demand, demonstrated by the double-digit growth in air passenger traffic and rising household credit.

In contrast, other major economies are showing a worrying trend. That makes the India story even more attractive. Morgan Stanley observes that China’s rising debt/GDP ratio could trigger a recession with weak wages. The property market in China that roared in the decades before this one is depressed now, the bank observes. According to the global bank, India will see an expansion that China saw 15 years ago.

In America, the US Federal Reserve committee that sets interest rates released meeting minutes outlining more interest rate hikes. That should dampen the sentiment in the US stock market, and money would move to US bonds that offer attractive coupon rates. The ‘risk on’ strategy means more money flowing into fixed income than equities.

While weak major economies make India an attractive proposition, a prolonged global slowdown is also unsuitable for India. Exports are already showing sluggishness, according to the RBI monetary policy releases. Nobody expects India’s current account deficit to suffer, and the Indian rupee is likely to remain stable. The other important aspect is the market valuation. At the previous peak in October 2021, the Nifty price-earnings multiple was much higher than the current level. Profits of Nifty 50 companies have shown steady growth over the past several quarters and make the valuation of Indian equities reasonable.

If you are new to investing, it is perhaps a good time to take that first step to create a stock or index fund portfolio. If you are already investing regularly, you may want to pick the right stocks to capture India’s promising growth story.


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