India’s Meteoric Rise
In the four years to the end of November 2024 the Indian stock market returned 77.2%, a compound annual growth rate of 15.4% (USD). This compares to the -0.8% and -0.3% compound rate of return of Asia ex Japan and emerging markets respectively. In Asia, only Taiwan (+13.3% CAGR) comes close.
PM Modi’s business friendly approach with a focus on infrastructure development and the country’s relatively favourable demographics have all played their part. More recently the focus is turning to building out India’s manufacturing capabilities which looks likely to be a significant contributor to future growth. Perhaps more an accident than a design, India’s geopolitical position has improved markedly in recent years.
In short, India’s stars are aligned.
Domestic retail flows into equities have played an increasingly significant role. In round numbers, monthly net flows into mutual funds have risen threefold or more over the same four year period. However, for the prospective investor this comes at a price. On both a price earnings ratio or price to book measure, India is roughly twice as expensive as the Asian or emerging equity universes.
Some lingering disappointment in the BJP’s performance in the national elections earlier this year has been followed by a number of underwhelming corporate results and a weaker than expected third quarter GDP print. The market has consolidated.
Step forward Maharashtra, India’s second most populous state and largest state measured by GDP, accounting for just over one eighth of Indian GDP. The state assembly elections held late last month saw the BJP and Allies win a thumping victory. The BJP won 132 seats (up from circa 100) and the BJP alliance won 235 out of the 288 seats.
The Economic Advisory Council for Maharashtra has laid out a vision for the state economy to grow to US$1tr before the end of decade with manufacturing rising from 16% to 21% of GDP. There have been large transformative infrastructure projects for Mumbai over the past decade (trans-harbour link, new airport, 300km metro, coastal roads etc) which are now maturing. The target over the next decade will be further expansion of coastal roads and metros and using the new airport as a development hub and progressing a high speed rail project to completion.
India may not be cheap but it knows where it is going.
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