Investing in emerging markets has always been a balancing act. The promise of high growth potential is often tempered by the inherent volatility and uncertainties that come with these markets. 

One country that has been outperforming recently is India. In this article, we’ll discuss the opportunities and risks associated with the market and whether it‘s still an attractive place to invest in 2024.

India's economic resurgence

India's corporate landscape tends to operate on a glass-half-full basis. However, the current buoyant mood for corporates is not unfounded and is in stark contrast to prevailing global sentiment. This is largely due to a period of sub-par growth in the years before the Covid-19 pandemic, with growth returning just as the pandemic hit. India’s economy appears to be playing catch up, driven by the reopening of its economy and a reduction in political risks. As a result, the accelerating growth story is coming through quite strongly.

Political stability and reform initiatives

Growth has been supported by the political stability offered and economic reforms introduced by Prime Minister Narendra Modi, who is running for a third term in office. While the initial years of Modi's administration witnessed sweeping reforms, recent years have seen more incremental changes. However, the groundwork laid by these early reforms continues to underpin India's current positive economic trajectory. One example was the Goods and Services Tax, which significantly boosted tax revenues. These reforms are now being leveraged to fund critical infrastructure projects, which are crucial for providing a solid foundation for sustainable growth.

Contrasting fortunes: India versus China

Reforms have also led to strong returns for the Indian stock market, especially compared to China, its regional counterpart. China is grappling with slowing growth, a beleaguered property sector, weakened consumer sentiment and cautious infrastructure spending due to concerns about high debt levels. By contrast, India is experiencing a property sector boom, buoyant consumer sentiment among the rising middle-class and in urban areas (rural spending remains weak). We’re also seeing a surge in infrastructure investment.

Exacerbating these differing fortunes are geopolitical factors. The US, for example, is actively engaging with India as a counterweight to China. This strategic alignment has led to increased foreign direct investment flows into India, particularly as global companies seek to diversify their manufacturing bases. Evidence of this has been the establishment of global capability centres, where multinational companies relocate back-office functions to take advantage of India's skilled yet cost-effective labour pool. India has encouraged this activity with initiatives such as the Production-Linked Incentive Scheme. This offers tax breaks and subsidies and has successfully attracted investment, especially in sectors like smartphone manufacturing. Much of this activity has been at the expense of China, or at least new investment on which China is losing out. This divergence in fortune underscores the significant disparities between the two economies, which has fed through to equity market performance.

Green economy and renewable energy

India is making significant strides in the green economy and renewable energy sector. At the COP26 summit, India committed to achieving net-zero emissions by 2070 – an ambitious goal for a developing economy. To meet this target, India has set interim goals for renewable energy generation by 2030, positioning itself as a leading player in renewable energy expansion.

While the green economy presents promising opportunities, navigating India's public markets for direct investments can be challenging. Few listed companies align directly with this theme. However, investors can explore opportunities indirectly through industrial companies providing components and services to the renewable energy sector.

Risks to consider

Investing in India is not without risks. The upcoming general election, India’s status as a net oil importer, and geopolitical tensions with neighbouring Pakistan are just three issues that could affect India’s growth trajectory and political stability. India's stock market has historically traded at a premium compared to other emerging markets. However, valuations are currently elevated, even on a relative basis, particularly in small- and mid-cap companies. India’s growth potential is clearly the reason why investors are willing to pay a premium in this market. Nonetheless, judgment is required on how much an investor is prepared to pay for that growth.

A multi-faceted investment opportunity

Despite its expensive valuations, India offers an array of attractive sectors for investors. The banking sector, infrastructure-related companies, residential development, and domestic consumption-focused businesses present opportunities in this dynamic market. As with any investment opportunity (and particularly in emerging markets), caution is warranted. However, through a selective approach and a long-term mindset, investors have an array of opportunities to tap into India's growth story.


Article adapted from a recent episode of our Emerging Markets Equities Podcast, “Lotus blooming - will 2024 be an Indian summer?”, hosted by Nick Robinson.


The value of investments and the income from them can go down as well as up, and investors may get back less than the amount invested. Past performance is not a guide for future results.