India Outperforms with High Growth and Low Volatility

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Jun 24, 2025

India is emerging as a top performer in equity markets, boasting notable economic growth and stability. Its impressive track record shows a 145% return in five years, outpacing global averages. Key factors include robust GDP growth, a thriving middle class, and minimal exposure to trade tariffs. Infrastructure investments are enhancing manufacturing competitiveness. The strong domestic investor base also supports this trend, suggesting India's potential for long-term outperformance on the global stage.

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INSIGHT

India's Market Outperformance

India's stock market has outperformed global and emerging markets significantly over five years.
This is due to superior economic growth, lower tariff exposure, and a strong domestic investor base.

INSIGHT

India's Strong Growth Drivers

India will contribute 20% to global GDP growth over the next decade.
Infrastructure improvements and a growing middle class are driving robust consumption and investment cycles.

INSIGHT

Robust Corporate Earnings Growth

Indian corporate earnings have grown about 12% per annum since COVID.
Earnings are forecasted to accelerate to 14-16% over the next two fiscal years due to private capex and rising consumption.

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Morgan Stanley’s Chief Asia Equity Strategist Jonathan Garner explains why Indian equities are our most preferred market in Asia.

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----- Transcript -----

Welcome to Thoughts on the Market. I’m Jonathan Garner, Morgan Stanley’s Chief Asia Equity Strategist. Today I’ll discuss why we remain positive on India’s long-term equity story.

It’s Tuesday, the 24th of June at 9am in Singapore.

We’ve had a long-standing bullish outlook on the India economy and its stock market. In the last five years MSCI India has delivered a total return in U.S. dollars of 145 percent versus 94 percent for global equities and just 39 percent for emerging markets. Indian equities are our most preferred market within Asia for three key reasons. First, India’s superior economic and earnings growth. Second, lower exposure to trade tariffs. And third, a strong domestic investor base. And all of this adds up to structural outperformance not just in Asia but indeed globally, and with significantly lower volatility than peer group markets.

So let’s dive deeper. To start with – the macroeconomic backdrop. We expect India to account for 20 percent of overall incremental global GDP growth in the coming decade. Manufacturing competitiveness is improving thanks to bolstered infrastructure in power, ports, roads, freight transport systems as well as investments in social infrastructure such as water, sewage and hospitals.

Additionally, India's growing middle class offers market opportunities to companies across many product categories. There’s robust domestic consumption, a strong investment cycle led by public and private capital expenditure and continuing structural reforms, including in the legal sphere. GDP growth in the first quarter was more than 7 percent and our team expects over 6 percent in the medium term, which would be by far the highest of the major economies.

Furthermore, we continue to expect robust corporate earnings growth. Since the end of COVID, MSCI India has delivered around 12 percent per annum [U.S.] dollar earnings per share growth versus low single digits for Emerging Markets overall. And we forecast 14 percent and 16 percent over the next two fiscal years. Growth drivers in the short term include an emerging private CapEx cycle, re-leveraging of corporate balance sheets, and a structural rise in discretionary consumption – signaling increased business and consumer confidence, after last year’s elections.

Another key reason that we’re positive on India currently is its lower-than-average vulnerability to ongoing trade and tariff disputes between the U.S. and its trade partners. Exports of goods to the U.S. amount to only 2 percent of India’s GDP versus, for example, 10 percent in Thailand or 14 percent in Taiwan. And India’s total goods exports are only around 12 percent of GDP. Moreover, for the time being, India’s very large services sector’s exports are not exposed to tariff actions, and are actually early beneficiaries of AI adoption.

Finally, India’s strong individual stock ownership means that there’s persistent retail buying, which underpins the equity market. Systematic Investment Plan (SIP) flows driven by a young urbanizing population are making new highs, and in May amounted to over U.S.$3 billion. They provide consistent capital inflows. That means that this domestic bid on stocks is unlikely to fade anytime soon.

This provides a strong foundation for the market and supports valuations which are slightly above emerging market averages. It also means that its market beta to global equities are low and falling, approximately 0.4 versus 1.1 ten years ago. And price volatility is well below other emerging markets. All told, making India an attractive play in volatile times.

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