Beyond the Hype: Why India is Still a Compelling Bet in 2025

Indian stocks have outperformed broad emerging markets for four consecutive years, reflecting the country's strong economic growth, structural reforms, and digital transformation. In 2024, India continued its trend of outperformance versus emerging markets, but specialized indexes like the MarketGrader India All-Cap Growth Leaders Index and the MVIS Digital India Index outpaced the broader Indian market.

In the fourth quarter of 2024, emerging markets sold off broadly due to a stronger U.S. dollar, trade tension and uneven growth across emerging markets economies, with India underperforming the broad market. Despite this, growth at a reasonable price (GARP) and digital-sector stocks proved more resilient, declining less than the broad Indian market. Digital sector stocks performed particularly well in Q4 due to a combination of sustained global demand for IT services, increased domestic digital adoption, and strategic investor interest. However, weakness extended into early 2025, with India continuing to lag even as emerging markets saw signs of recovery. Growth stocks, including GARP and digital sector stocks, underperformed the broader Indian market in January.

Source: Morningstar as of 1/31/25 Past performance is no guarantee of future results. Index performance is not representative of fund performance. It is not possible to invest directly in an index.

India 2025 Outlook – More of the Same

As outlined in our blog, India’s Economic Rise Deserves Investor Attention, India's rapid economic ascent is capturing significant investor interest, driven by several key factors. The nation is experiencing robust GDP growth, bolstered by forward-looking government policies that create a conducive business environment. A significant contributor to this expansion is the digital sector, which is flourishing due to widespread smartphone adoption and initiatives promoting financial inclusion and fintech innovation. Additionally, India's young, English-proficient workforce provides a competitive edge, attracting multinational corporations and fostering a thriving equity market that has recently surpassed China's in performance. These dynamics underscore India's unique position in the global investment landscape, presenting compelling opportunities for investors seeking growth in emerging markets.

Going forward, we expect:

• Sustained GDP Growth: India’s economy is expected to expand at 6-8% annually, driven by domestic consumption, structural reforms, and a growing digital economy.
• Infrastructure Expansion on Track: Government-led investments in renewables, logistics, and soft infrastructure will have second- and third-order effects on real estate, inflation trends, and DTC business models.
• Economic Resilience: Low trade deficits and a diversified economy make India less vulnerable to global shocks, with digitization and financial formalization strengthening long-term stability.
• Justified Valuations: India’s high P/E ratios reflect productivity gains, economic formalization, and superior growth rates compared to similarly valued markets like the U.S. and Taiwan. Sector-specific opportunities outweigh broad valuation concerns.

Ongoing Risks

We see the below ongoing risks for Indian equity investors:

• Domestic Political Uncertainty: Despite securing a third term in the 2024 elections, India's political landscape remains uncertain as the majority party now relies on coalition partners, which could impact policy execution and reform momentum. Upcoming state elections and governance challenges may introduce further volatility. Additionally, concerns over media restrictions and civil liberties could affect investor confidence and India's global standing.
• Global Market Downturn: India is not immune to external shocks. A global economic slowdown, recession in key trading partners, or tightening financial conditions could lead to capital outflows and currency depreciation. Rising U.S. interest rates, geopolitical conflicts, or a slowdown in global trade could impact India’s exports and foreign direct investment (FDI). Additionally, risk-off sentiment in global markets could lead to short-term corrections in Indian equities, particularly in foreign-investment-heavy sectors like technology and financials.

Now Is the Time to Invest in India

India is rapidly transforming into a powerhouse investment hub. Its booming digital sector, combined with a strong equity market, is drawing global attention. Additionally, the government's committed push for financial inclusion and fintech innovation is further fueling this interest. When compared to China, India's demographic advantage amplifies its allure. Simply put, we believe India's strong economic foundations and massive market potential make it an irresistible destination for investments.