Interactive Investor

India stock market outlook 2024: rapid growth could last decades

It boasts one of the fastest-growing economies and best-performing stock markets, and investing expert Rodney Hobson believes there’s still plenty of time to gain exposure to the theme.

22nd December 2023 09:23

Rodney Hobson from interactive investor

The world’s largest democracy, India, became the world’s most-populous country in June as its population of around 1.4 billion overtook China’s. It has also overtaken China as the world’s fastest-growing major economy.

Industrialisation has started to take off rapidly, with the move from rural areas to big cities well under way as farmworkers seek higher pay in factories and offices. Real wages are still well below those in China, let alone in developed countries, so the scope for further domestic migration is considerable.

This urbanisation is a sure sign of economic expansion, having been the pattern in the Western world during the Industrial Revolution and most recently during the boom years in China. The United Nations Population Division puts the percentage of Indians living in towns and cities at 35% in 2022, with the proportion growing year by year.

Unlike China, India has had a big early lead in attracting technology to its shores, with many companies finding it cheaper to use Indian labour for computer programming rather than pay Western wage levels for skilled workers. Thus a wealth of computer skills has been built up over several years.

Gross domestic product, adjusted for inflation, is estimated to have been 6% this year and the scenario for 2024 is a similar figure, according to the International Monetary Fund (IMF). Compound economic growth is running at twice the rate for the world as a whole and four times faster than for developed nations.

India looks remarkably similar to China around the turn of the millennium, before the impact of China’s one-child policy had fully worked its way through into its working population. This suggests that India could be due for at least another two decades of rapid growth.

Unfortunately, this industrialisation and expansion has put India on a collision course with climate change activists. Industrialisation has already forced a sharp rise in demand for energy, and for the generation of energy, and will inevitably continue to do so. India has been one of the countries dragging their feet at the COP international climate conferences over phasing down, let alone phasing out, fossil fuels.

Although most of India is nearer to the equator than other industrialised nations, and will therefore use less fuel on heating, that advantage is partly offset by the need to cool computers and air condition offices.

India’s energy generation has already caused severe air pollution in Delhi and other cities, making life unpleasant. It’s thought that life expectancy in urban areas could be reduced by as much as five years, adversely affecting less productive elderly and unwell members of the population.

India’s population has grown on average 1.1% over the past 10 years, and although the average age of its population is rising slowly it is still a comparatively low 27.9 years. In other words, there is a working-age population to create a growing consumer class and also to have families that will keep population growth moving for the foreseeable future.

In the meantime, India has the benefits of a stable if somewhat controversial government. Narendra Modi has been prime minister for the past decade and his Bharatiya Janata Party (BJP) has well and truly supplanted the once mighty Congress Party that ruled India for decades after independence in 1947.

Modi relies on a message of Hindu populism that has caused considerable tensions with the sizeable Muslim minority but it continues to appeal to the Hindu majority. Recent state elections, which Modi made clear he regarded as a test of his own popularity, have entrenched his position as leader.

Although Congress retained control of Karnataka in May, the BJP subsequently won Rajasthan and Chhattisgarth from Congress while winning in Madhya Pradesh for the fifth time in a row.

All in all, the prognosis for investors seeking a foothold in India looks highly promising. The sensible path is to invest through investment funds. As a stock market, Delhi still has much work to do in building a reputation as a mature and properly regulated entity.

Rodney Hobson is a freelance contributor and not a direct employee of interactive investor.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.