Global Gains: How To Identify Lucrative Stocks In Emerging Markets For US Investors

India has grown its GDP at a CAGR of 5.5 per cent over the past decade and could more than double from $4.1 trillion to surpass $7.5 trillion by 2031

Exchange Traded Fund (ETF) is best suggested option for a new US investor in India, without being stock specific here.

Source : Pixabay

By Priti Goel

An emerging market, India is on track to become the world’s third-largest economy by 2027, surpassing Japan and Germany. India has grown its GDP at a CAGR of 5.5 per cent over the past decade and could more than double from $4.1 trillion to surpass $7.5 trillion by 2031. Over the last five years, the Indian stock exchange achieved an 18.8 per cent annualised return, surpassing the US, Japan and the UK. India’s market capitalisation reached $5.27 trillion in June 2024, and is aiming for $10 trillion (i.e. 11 per cent growth) by 2031.

India offers several long-term investment opportunities for both retail and institutional investors. Here are some key factors to consider.

• Driven by large and young population (median age being 28.2 years in 1.48 billion people population), urbanisation and structural reforms. India’s youthful population provides demographic dividend, a growing workforce and a consumer base
• As middle class expands (currently 31 per cent of 1.48 billion people, projected 38 per cent by 2031, 60 per cent by 2047), consumption patterns are evolving. In Dec’23, private consumption 63.6 per centof India's nominal GDP
• Sectors like retail (10 per cent of India's GDP, CAGR of 25 per cent), e-commerce (to grow @18 per cent annually through 2025 and touch $350 billion in gross merchandise value by 2030) and consumer goods are attractive for long-term investments
• The Government of India’s initiatives of “Make in India”, “Digital India”, and “Startup India” aim to boost economic activity & attract investments
• India is a hub for technology & innovation and provides for attractive investments. Indian IT sector’s spending is forecasted to hit $138.9 billion in 2024, up by 13.2 per cent from $122.6 billion the previous year. In FY24, the revenue (including hardware) is estimated to reach $254 billion, a 3.8 per cent YoY growth. The Indian IT industry employs 5.4 million people, 7.5 per cent of India’s GDP
• Government focus on infrastructure developments (road, railways, airports, etc), presents investments prospect, with a record-breaking capital expenditure (capex) of $134 billion in the fiscal year. Real estate and construction related sectors benefit from this growth
• Foreign Institutional Investors (FIIs) maintain a positive outlook despite short term fluctuations or market volatility
• India’s private equity industry (startups and emerging companies) has evolved, attracting diverse pool of capital and buyout investments. Since 2003, private-equity firms have invested more than $97 billion in India (excludes real estate assets and venture capital)
• India’s manufacturing sector (15.8 per cent of the GDP) remain on strong medium term growth trajectory as underlying drivers continue to strengthen
• Rising power demand and need to reduce carbon footprint continues to drive investments in renewable energy and other new technology areas
• India Banking system (12 public sector banks, assets over $1.5 trillion; 22 private sector, assets over $800 billion, 46 foreign, 56 regional rural, 1485 co-operative and 96,000 rural co-operative banks) remains robust, with sound governance, improved provisioning, capital adequacy, desired asset quality and supporting credit growth. Gross non-performing assets (NPA) levels for scheduled commercial banks and non-bank finance companies (NBFCs) are below 3 per cent as of March 2024
• India’s Mutual Fund (MF) Industry is the world’s second-largest (over $400 billion in AUMs). With a CAGR of 17.5 per cent over the past five years, more than 46 million households have invested in MF in India

Exchange Traded Fund (ETF) is best suggested option for a new US investor in India, without being stock specific here. Look for ones that track Indian indices (i.e. Nifty50- tracks top 50 blue chip companies; BSE Sensex-tracks top 30 actively traded stocks, Nifty Next 50- tracks next 50 companies after Nifty 50; Nifty Midcap (50/100/150)– tracks mid-sized companies, and Nifty Small cap (50/100/250)- tracks small cap Indian equities, etc). It provides diversified exposure to the Indian markets basis one’s risk appetite and are very easy to invest like any stock.

Disclosures

• Investment in securities market are subject to market risks. Read all the related documents carefully before investing
• The securities quoted are for illustration only and are not recommendatory
• Registration granted by SEBI, membership of BASL (in case of IAs) and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors

The author is the founder and CEO of Prisha Wealth Management Private Limited, a SEBI Registered Investment Adviser.

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