India stock market outlook 2025: a good time to invest

Massive changes are under way in India as evolution from under-developed struggler to global superpower has gathered momentum. The largest democracy in the world has already been transformed but there is plenty for investors to get their teeth into.

Fewer than a fifth of the country’s population lived in urban areas 60 years ago. Now two out of every five people are in growing towns and cities as the economy has been transformed from mainly agriculture to services, particularly in information technology, which is now worth $150 billion (£118 billion) a year in export earnings.

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This change has come at a price, not least the smog that engulfs the capital New Delhi from time to time. The latest, particularly serious, incident in November was, ironically, widely blamed on the shrunken agriculture sector burning off stubble after the harvest.

A more likely suspect is the wide spread of coal-fired power stations needed to provide the electricity for the power-hungry IT sector and other service industries. India has been desperately ramping up its antiquated infrastructure that has been left behind in the dash into the 21st century.

India’s workforce is under immense pressure in the process. Apart from breathing foul air, employees are strongly encouraged by many employers to take the work ethic to a whole new level. Prime Minister Narendra Modi is reputed to work 100 hours a week and he claims he has not had a holiday since he came to power 10 years ago.

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Narayana Murthy, the billionaire cofounder of leading global IT services provider Infosys Ltd ADR (NYSE:INFY) and father-in-law of former British prime minister Rishi Sunak, thinks India has got the work-life balance wrong. Far from recognising the need for Indians to recharge their batteries with a little rest, he argues that too little work is reducing output, leaving India with one of the worst productivity records in the world. He regrets the move from a six-day to a five-day working week, suggesting that a 70-hour working week should be the norm.

A new generation disagrees, arguing that it is the long working hours that reduces productivity. An incentivised workforce could, it is argued, produce the same level – or more – of goods and services in fewer hours if they had time to relax.

This dilemma is set to continue even as India develops a burgeoning middle class and consumer society. The International Labour Organisation found that many Indians work more than 2,000 hours a year, some working throughout the night.

If this cycle can be broken, the scope for a blossoming of the Indian economy is easy to see. All the ingredients that helped China to leap forward are present and there are several positive extras as well.

India did not have a one-child policy as China did under Chairman Mao, so there is still a steady stream of young people joining the workforce, which has led to India overtaking China as the most-populous country in the world. India also has the advantage of the widespread use of English among its 1.4 billion nationals, which opens more doors than Chinese does to the rest of the world, especially in IT where the use of an alphabet is somewhat more conducive to efficiency than thousands of characters.

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It is reasonable to argue that India, now probably the sixth-largest economy in the world and moving relentlessly up the rankings, is in the early stages of an economic miracle. Strong growth in gross domestic product (GDP) has been accompanied by equally strong corporate earnings, which analysts believe will easily hit double digits next year. Such growth is not fully reflected in the share prices of Indian equities, suggesting that share prices could well rise strongly, especially if more overseas investors start to cotton on to this potential, which does seem to be happening.

Hobson’s choice: This is surely a good time to consider adding India to any investment portfolio. Look for funds that concentrate on India, or for Asian funds with a heavy bias towards the country.

Those who prefer to make their own picks should look for companies that feed the growing consumer market, especially those catering to meet the projected increase in discretionary spending, such as in hotels, clothing and travel. Do not overlook India’s love of jewellery, especially if made of gold. 

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