Indian equities - the fundamentals, trends and beyond (Part 1)

Indian equities - the fundamentals, trends and beyond (Part 1)

India has become the top performer among emerging Asian countries. NIFTY 50 and BSE SENSEX returned 4.35% and 3.96% YTD, and more encouragingly, rose 79.94% and 81.63% over the past five years, doubling the growth of MSCI All Country World Index.1 The number of firms going public also hit a record high with 184 IPOs being hosted in India this year.1

We are positive about this region and its outlook, considering its comparative advantages in fundamentals and the potential of emerging trends.

Why India?

Strong growth momentum

India is the fifth largest economy in the world with a GDP of USD3.38 trillion in 2022.2 It is also the fastest growing country in Asia with annualized GDP growth expected to reach 6.5% over the next five years.3

The International Monetary Fund (IMF) has recently upgraded India's growth forecast for 2024 to 6.3% from 6.1% due to stronger-than-expected consumption in the second quarter of 2023. The forecast for 2023 and 2024 remains unchanged at 6.3%.4

Figure 1: Real GDP forecast in Asia

Source: International Monetary Fund, October 2023

Favorable demographics of young population

  • India surpassed China in 2023 to become the most populous country in the world, per UN estimates.
  • With a median age of 27.6 and a total of 254 million youths (aged between 15-24), India is also one of the youngest countries and has the world’s largest youth population.3
  • Lifestyle spending is expected to increase as youths enter working population, signifying massive potential in the consumer discretionary sector. 

Rising income and discretionary spending

  • For India, the share of the working age population is 67%.6 It is still on the rise and have already passed the peak in China, Brazil, or even the global average.6
  • On the other hand, total dependency rate is expected to fall from 65.2 in 2011 to 53.8 in 2031, implying rising income per household.6

Is the existing valuation reasonable?

  • One of the biggest questions we receive from investors is about the valuation of Indian equities.
  • Indian companies have demonstrated a consistent pattern of achieving mid-teen profitable growth and have displayed a propensity to enhance their Return on Equity (ROE).
  • Indian companies are currently experiencing lower leverage on their balance sheets. They have been gradually and steadily building capacities, and their prudent allocation of capital has led to a more cautious approach in generating better reserves.
  • In fact, the current P/E ratio of NIFTY 50 is at a reasonable level of 20.6x, lower than the 5-year average of 21.4x.7
  • Following the earlier rally and rerating in the Indian market, we maintain a mindful approach towards the valuation of Indian equities.
  • We prefer stocks with reasonable valuation and benefits from structural trends which will be introduced in the next episode of this series.
Figure 2: NIFTY 50 P/E ratio

Source: Bloomberg, 31 October 2023

This is Part 1 of a two part series on Indian equities. Part 2 was published on 5 January, 2024.

Invesco India Equity Strategy


  • 1 Bloomberg, 2 November 2023

    World Bank, 1 July 2023

    HSBC Global Research, September 2023

    International Monetary Fund, October 2023

    Mint, “Does the 4% inflation target need a reset?”, 29 August, 2023

    Macquarie Research, August 2023

    Bloomberg, 31 October 2023

Investment risks

  • For complete information on risks, refer to the legal documents. The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

Important information

  • Data as at 29thNovember 2023, unless otherwise stated. This is marketing material and not financial advice. It is not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. Views and opinions are based on current market conditions and are subject to change.

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