Graphic: India’s equities poised to outperform
India's equity market has produced outsized gains vs. other emerging markets. Economists expect the government's plan to bolster capital spending over the next several years will positively impact real gross domestic product growth, and they predict budget deficits as a percentage of GDP will keep falling. With solid economic growth and a better balance sheet, India appears poised to continue providing strong long-term returns.
Sector weightings: Financials is the largest-weighted sector in the MSCI India index at 26.3%, followed by information technology (13.9%) and energy (12.4%). By comparison, the overall MSCI Emerging Markets index has a 22.2% financial-sector weight, 19.7% for IT and 5% for energy.
Index composition by sector*
| Sector | MSCI India | MSCI Emerging Markets | Russell 3000 |
|---|---|---|---|
| Financials | 26.3% | 22.2% | 10.7% |
| Information technology | 13.9% | 19.7% | 27.2% |
| Energy | 12.4% | 5.0% | 4.9% |
| Consumer discretionary | 10.0% | 13.1% | 14.0% |
| Consumer staples | 10.0% | 6.4% | 5.6% |
| Materials | 9.3% | 8.8% | 2.2% |
| Industrials | 5.7% | 6.2% | 13.1% |
| Health care | 4.6% | 3.9% | 13.8% |
| Utilities | 4.3% | 2.7% | 3.1% |
| Communication services | 3.0% | 10.1% | 2.4% |
| Real estate | 0.6% | 1.9% | 3.2% |
Better returns, less risk: The MSCI India index's -1.6% year-to-date return trails the MSCI Brazil index's 5.6%. However, longer term, India has generated larger returns and lower volatility than China and Brazil. Over 10 years, India returned 6.8% annualized with about 20% volatility vs. China's 2.5% and 22.4%, and Brazil's -1.2% and 35.1%.
Index returns and volatility**
Faster growth: In the years leading up to the global pandemic, India's real GDP growth closely matched or exceeded that of China's and emerging Asian countries. In 2020, India's real GDP fell 5.8%, while China's grew 2.2%. But in 2021 and 2022, India's real GDP grew faster than China’s economy. Private economists and those at the International Monetary Fund expect that trend to continue for the next few years.
India vs. China, GDP and inflation
*May not sum to 100 due to rounding. **Through May 17. Sources: MSCI Inc., FTSE Russell, Bloomberg LP, International Monetary Fund