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How to Identify Lucrative Emerging Market Stocks for US Investors

Posted on by darion

By Priti Goel

As a growing market, India is on track to become the world’s third-largest economy by 2027, overtaking Japan and Germany. India has grown its GDP at a CAGR of 5.5 per cent over the past decade and could more than double from $4.1 trillion to over $7.5 trillion by 2031. The Indian stock market has delivered an 18.8 per cent annualised return over the past five years, outperforming the US, Japan and the UK. India’s market capitalisation touched $5.27 trillion in June 2024 and is on track to reach $10 trillion (an 11 per cent increase) by 2031.

India offers many long-term investment opportunities for both retail and institutional investors. Here are some key factors to consider.

  • Driven by a large and young population (median age of 28.2 in a population of 1.48 billion), urbanization and structural reforms, India’s young population provides a demographic dividend, a growing workforce and consumer base

  • As the middle class grows (currently 31% of 1.48 billion people, projected 38% by 2031, 60% by 2047), consumption patterns are changing. In December 2023, private consumption accounted for 63.6% of India’s nominal GDP

  • Sectors like retail (10% of India’s GDP, CAGR 25%), e-commerce (expected to grow 18% annually through 2025 and reach $350 billion in gross merchandise value by 2030) and consumer goods are attractive for long-term investment

  • The Indian government’s initiatives ‘Make in India’, ‘Digital India’ and ‘Startup India’ aim to boost economic activity and attract investments

  • India is a technology and innovation hub and provides attractive investment opportunities. Indian IT spending is expected to reach $138.9 billion in 2024, up 13.2% from $122.6 billion in the previous year. Revenue (including hardware) is expected to reach $254 billion in fiscal 2024, up 3.8% year-on-year. The Indian IT sector employs 5.4 million people, accounting for 7.5% of India’s GDP.

  • The government’s focus on infrastructure development (roads, railways, airports, etc.) is providing an investment opportunity, with a record capital expenditure (capex) of $134 billion in the fiscal year. The real estate and construction sector is benefiting from this growth

  • Foreign institutional investors (FIIs) maintain positive sentiment despite short-term market fluctuations or volatility

  • The Indian private equity sector (start-ups and emerging companies) has evolved to attract a diverse range of equity and buyout investments. Since 2003, private equity firms have invested over $97 billion in India (excluding real estate assets and venture capital)

  • India’s manufacturing sector (accounting for 15.8% of GDP) remains on a strong medium-term growth path as fundamental drivers continue to strengthen

  • Growing energy demand and the need to reduce carbon footprint continue to drive investment in renewable energy and other new technology areas

  • India’s banking system (12 public sector banks, assets over $1.5 trillion; 22 private sector, assets over $800 billion, 46 foreign banks, 56 regional rural banks, 1,485 cooperative banks and 96,000 rural cooperative banks) remains sound, with solid governance, improved provisioning, capital adequacy, desirable asset quality and supportive credit growth. Gross non-performing assets (NPA) levels for scheduled commercial banks and non-banking financial companies (NBFCs) are below 3 per cent as of March 2024.

  • The Mutual Fund (MF) industry in India is the second largest in the world (over $400 billion in AUM). At a CAGR of 17.5 percent over the last five years, over 46 million households have invested in MF in India

Exchange Traded Fund (ETF) is the best suggested option for a new US investor in India, without focusing on stocks here. Look for those that track Indian indices (e.g. Nifty50 – tracks top 50 blue chips; BSE Sensex – tracks top 30 actively traded stocks, Nifty Next 50 – tracks 50 next companies after Nifty 50; Nifty Midcap (50/100/150) – tracks mid-cap companies, and Nifty Small cap (50/100/250) – tracks small cap Indian stocks etc.). They provide diversified exposure to Indian markets based on risk appetite and are very easy to invest in like stocks.

Disclosures

  • Investments in the securities market are subject to market risks. Before investing, read all related documents carefully

  • The securities provided are for illustrative purposes only and do not constitute a recommendation.

  • Registration with SEBI, BASL membership (in case of IA) and NISM certification do not in any way guarantee the performance of the intermediary or provide any profits to the investors

The author is the Founder and CEO of Prisha Wealth Management Private Limited, a SEBI registered investment advisor.

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