India’s stock market has made big gains in 2024, positioning the country as a top emerging market with strong long-term potential. The NSE Nifty 50 Index, India’s main stock market benchmark, has jumped 18.7% this year, hitting record highs. Likewise, the iShares MSCI India ETF (INDA), which tracks Indian stocks, is up nearly 19%, its best performance since 2017. This outperformance shows the rising appeal of Indian stocks, which have beaten the 16% gain in the broader iShares MSCI Emerging Market ETF (EEM).
Several factors have fueled this optimism. One major driver is the increased use of technology in India’s banking sector. Large public investments in infrastructure and shifts in global supply chains away from China have also helped boost India’s economic outlook. Growing consumer spending and a strong real estate market have further pushed market growth.
Malcolm Dorson, head of emerging markets strategy at Global X ETFs, says India stands out as one of the most promising growth stories in both emerging markets and the world. Historically, Indian stocks have provided solid returns with relatively low risk, making the country a desirable place to invest.
Another factor making India more attractive is U.S. Federal Reserve policy. Lower U.S. interest rates tend to weaken the dollar, making Indian assets more appealing to foreign investors. Dorson points out that Indian stocks have typically gained when the U.S. dollar drops, with Indian equities rising an average of 3.73% for every 1% decline in the dollar compared to the Indian rupee. Past data also shows that the MSCI India index has averaged a 27% gain in the six months after the Fed stops cutting rates, jumping to 38% over the next year.
India’s growth has also helped it surpass China in 2024, making it the largest emerging market by weight in the MSCI All-Country World Index. The country’s higher earnings growth compared to China has drawn more investor attention. Dorson expects India’s earnings to grow by 6% to 8% annually over the next five years, driven by reinvestment in high-return projects.
India’s position as the world’s largest democracy, with stable international relations, has also increased its attractiveness to foreign investors. Its political stability and business-friendly climate provide a defensive edge amid global trade tensions. Over the last five years, the INDA fund has risen 77.2%, easily beating the broader EEM fund, which climbed only 16%.
However, there are risks. One concern is how fast the U.S. will cut interest rates. If the Fed is slower to lower rates, it could affect the momentum of Indian stocks. Domestically, India also faces challenges like income inequality, with Barclays analyst Venugopal Garre warning that wealth concentration among the top 10% could slow broader economic progress if job growth doesn’t keep pace with development.
Investors are particularly interested in India’s financial sector. Krishna Mohanraj, portfolio manager at Diamond Hill Capital Management, notes that Indian banks are well-positioned to benefit from GDP growth, banking system expansion, and the strength of private sector banks. Stocks like HDFC Bank, ICICI Bank, and Axis Bank offer good value compared to industrials and consumer stocks.
Beyond the financial sector, infrastructure growth remains a key driver. India’s continued investment in infrastructure is expected to stay strong, with companies like Whitehaven Coal, a supplier of coal to India’s steel industry, benefiting from this trend. The real estate sector is also expanding, driven by rising incomes and growing demand for bigger homes. Leading real estate stock Prestige Estates Projects has attracted foreign investment as the industry expands with new office spaces and residential buildings.
India’s stock market performance in 2024 showcases the country’s rising status as a global economic leader. With growth driven by technology, infrastructure, and strong corporate earnings, India offers attractive opportunities for long-term investors. While challenges like global economic uncertainty and domestic inequality remain, India’s position as a top player in emerging markets is becoming more solid.
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