How long will India outperform the global stock markets?

The global economy is battling a historically high level of inflation, slowdown in growth and rising energy prices. In this current situation, experts feel India appears to be an oasis. According to a recent Morgan Stanley India report, there are drivers in place that will make India the world’s third-largest economy and stock market before the end of the decade.

The global brokerage house estimates that India’s gross domestic product (GDP) is likely to surpass $7.5 trillion by 2031, more than double of the current levels, adding about $500 billion per annum on an incremental basis over the decade. Further, India’s market capitalization will likely grow by over 11% annually, to $10 trillion, in the coming decade.

However, key risks include a prolonged global recession or sluggish growth, adverse geopolitical developments, domestic politics and policy errors, shortage of skilled labour, and steep rise in energy and commodity prices.

On a long-term basis, Indian markets have underperformed the US markets, however, the tables have turned over the last two years.

You might also like

Tweak in IBC to turn sick firms around faster

Adani plans retail bond sale worth ₹2,000 crore 

What gives TVS an edge over Hero?

Titan sparkles, but stock remains pricey

As per a recent report by PhillipCapital India, Nifty50 has shown better recovery from the covid-19 crisis. Post-covid, Indian equities recovered within eight months and are 47% above pre-covid levels. On the other hand, global equities are trading just 4% higher.

Here is what experts have to say on how long India will outperform the global stock markets.

‘India is emerging as a beacon of hope’

Radhika Gupta, managing director and chief executive officer, Edelweiss AMC

The current global economic landscape is fairly tenuous as governments as well as central banks across the world try to strike a balance between higher interest rates, an inflationary environment, shifting trade imperatives, and currency risks. In the backdrop of such a landscape, India is emerging as a beacon of hope.  The inflation vs interest rate risks are currently well-balanced while the growth environment continues to be fertile—an enabling regulatory environment, strong consumer demand, a thriving business ecosystem, and increasing digital adoption are driving India’s growth potential.

Today investors have the option to invest not only in India but across global-focused funds. Also, valuations in some of the global markets might certainly look cheaper today. But over the next 3-5 years, given India’s economic outlook, we think that India has a strong bottom-up case and hence Indian equities should get a huge share of the asset allocation for investors. 

Having said that, India is not going to be immune to the volatility of the external environment and can potentially witness some stress in the near term. While export-oriented businesses could be impacted by global volatility in the short-term, India’s domestic-focused businesses and particularly, domestic cyclicals, are expected to continue performing well going forward.

‘India’s outperformance in global mkt is temporary’

Basant Maheshwari, co-founder & partner at Basant Maheshwari, Wealth Advisers LLP

India’s outperformance is temporary because in global markets everything is connected. Europe has its own problems because of the Russia-Ukraine war, the markets there are flat at present. 

China has its own problems because of its zero-covid policy. So artificially, the Chinese economy is strangulated. In India, we don’t have the issues seen in other countries, we don’t have a Russia-Ukraine problem, and we don’t have a government which is shutting down everything because of covid. So, I think that’s a temporary outperformance if you ask me, However, beyond that I don’t see any long-term structural outperformance.

These other markets will tend to outperform India unless you think that China will be locked down for the next 10 years, the Russia Ukraine war will be happening for the next 10 years and the rest of the world will not have a different source for energy. 

These are temporary blips where we’re just trying to extend a small outperformance too much into the future. We are doing a lot of extrapolation.

If India was economically in such a dominant situation, we would have the rupee at the 76 level. Of course, it hasn’t fallen much as the Reserve Bank of India has burnt up $100 billion trying to save the currency.

‘Next 10 years are going to be blowout years for India’

Shankar Sharma, founder, GQuant Investech and First Global

First of all, don’t trust everything that you hear on social media. But that’s it. USA has beaten every other market hands down over a 30-year basis, there is no comparison, and even on a five-year basis, it has beaten almost every market. 

It’s only in the last one and a half years that India has started to do well and outperforming the US after not beating it for the last 10 years. So from 2010 till 2020, India’s performance was absolutely abysmal. 

There was no return, as the market returns for 10-years in dollar terms was zero. So, it is only in the last one-and-a-half years or maybe two years, that India has started doing well. Surprisingly, now people are thinking that India always did well which is not the case at all.

India will definitely be the world’s best performing market for the next three to 10 years. The past 10 years were not good for India, in terms of our market performance, but the next 10 years are going to be blowout years for India, without any doubt. 

It is the single best market in my view that is there right now. Just as my best view in 2010 was that the US would beat all other markets and that’s what happened. Now, my view is that India will beat all other market for the next 10 years.

‘India as a destination  has improved a lot’

Samir Arora, founder and fund manager,  Helios Capital Management

Suppose these PSUs (public sector units) had been listed in India in the 1990s—the Doordarshans, BSNLs and PSU banks. The markets would have underperformed. But that didn’t happen. The sectors that were bad were not listed because we didn’t privatize anything. If every company in the market had been listed, then our performance would have been much worse. 

In China, what has happened is that the PSUs are listed but not all the new companies are listed. Unlike in China, most of the multinational companies (MNCs) in India are listed. Imagine if Unilever or Nestle were not listed in India, their contribution over the years would not have been there. Also, if the Chinese markets had not made any money, how do they have over 400 billionaires, who have made money only in the last 30 years only?

Investors shouldn’t look at which market outperformed in the past. Nobody can say for sure that a particular market that did not work well for 10 years will not go up in the next 10 years. However, right now we are saying that India has a better chance of going up, because as a destination it has improved a lot. Not so much because we have done very well, but when it comes to Europe or China, these countries are performing very badly and have disappointed investors. 

Now, it appears to investors that they have been bit by specific Chinese policies, which they aren’t going to ignore.

‘Have dominant exposure to Indian businesses'

Kalpen Parekh, MD & CEO, DSP Mutual Fund

There are three large markets where technology adoption is happening at a large scale. These markets have grown and are at different stages of their economic cycle- India, the US and China. India has seen growth and it’s priced in largely. The US companies have innovation and global scale and at the same time have deeper concerns of rising interest rates and a slowing economy, which is now showing up in the recent fall of 20 to 30% in the US stocks. China has growth and scale but is difficult to understand in terms of language and interpret their political actions towards businesses. However, all these negatives are also reflected in lower stock market prices with the recent correction. It also is a very large economy that the world can’t ignore.

My investing approach would be to have dominant exposure to Indian businesses as they have a multi-decadal growth opportunity. However, our stock prices also reflect that in higher prices. I would use the correction in global stocks to add some international exposure.

I prefer investing globally via diversified funds where I am not exposed to single-country risks.

My current equity breakup would be 80% India and 20% global, which would have good companies at good prices across the world, most of them come from US due to its sheer size of profit pool and selectively across other regions like Europe, Japan and China.

I don’t invest in single-country markets directly yet especially China since it’s not my area of competence hence outsource it to some of our global funds that invest across the globe.

Elsewhere in Mint

In Opinion, Manu Joseph argues why it's not democracy that will save Delhi from toxic smog. Nitin Pai tells how we should confront the global 'polycrisis'. Aditya Sinha and Chirag Dudani write how to make states face consequences of their fiscal misadventures. Long Story exposes the governance challenge at MCX.