Over the past decade, India has undergone a remarkable economic transformation, evolving from the 9th largest to the 5th largest global economy, with a nominal GDP reaching US$3.4 trillion. The impact of major reforms, including bankruptcy laws, GST implementation, RERA, and demonetization, has propelled India’s GDP growth at an impressive 7.2% in nominal USD terms, driving formalization and sparking a digital economy. Despite short-term challenges, India is steadily ascending the world GDP ranking.
Projections indicate that India is not only poised to grow at 6% over the next five years but is set to become the fastest-growing large economy globally. This growth trajectory, against a backdrop of declining rates in other major economies, is expected to elevate India’s global economic salience to approximately 8%. Already a focal point for several countries and companies, India’s contribution to world GDP is forecasted to reach 7.7% by 2028.
Fueling India’s economic momentum is its favorable demographic landscape, featuring a vibrant and young population with an average age just below 30. The ongoing addition of 7-8 million to the labor force annually and an expected increase of 152 million in the middle-age population are catalysts for meaningful savings and investments.
India’s reported unemployment rate at 4.1% belies the high labor force availability, with over 40% still employed in agriculture. This sector acts as a source of migration to more remunerative employment in construction and manufacturing, bolstered by the government’s push for digital transformation. India’s durable labor availability and migration dynamics provide a sustained competitive advantage, contributing to its higher GDP growth.
The corporate sector’s unique growth story includes a reduction in leverage, with the Debt-to-Equity ratio dropping from close to 1.0x in FY15 to <0.5x in FY24. This positions the corporate sector for growth through investment and capacity addition, extending support to India’s next leg of GDP growth.
India’s market cap, currently standing at US$4.3 trillion and ranking 5th globally, has the potential to surpass $10 trillion by 2030. The equity markets have consistently delivered 10% annual returns in USD terms over various periods, outperforming global peers in the emerging market space. With a renewed capex cycle and robust earnings profile, India’s equity markets are anticipated to sustain 8%-10% dollar returns over the next 5-7 years.
While India’s market cap is the 5th largest globally, its weight in Bloomberg Global remains low at 2%. However, this is expected to change, driven by structural domestic flows, increasing awareness of investment through mutual funds, and the potential listing of large unicorns. As India’s weight in global indices climbs, the nation is poised to attract incremental foreign flows, presenting significant opportunities for investors and businesses alike.
As the primary market activity gains momentum, including IPOs, FPOs, and block deals, India is becoming an attractive avenue for global MNC companies to list, creating a potential game-changer for Indian equity capital markets. With a robust demand for equities driven by rising domestic investors, India’s economic resurgence presents a compelling narrative for sustainable growth and investment opportunities.
Source: Jefferies: Equities Research
