India's Nifty 50 index hasn't posted a monthly decline of over 5% in four years, while its weight in MSCI's emerging-markets index has doubled and options trading has surged - these are just a few records set by Indian markets since the pandemic. The structural case for India's equities remains compelling, supported by a robust nominal GDP growth trajectory, ongoing reforms, and increased capital spending. Faster formalization, which sees larger firms gaining market share at the expense of smaller ones, along with low India allocations in global portfolios and strong domestic liquidity, further strengthens this outlook.
India's GDP growth outlook, underpinned by a young demographic, reform momentum, stable politics, and a robust pickup in services and goods exports, supports a positive long-term view for the country's equities, consistent with the historical link between stock-market returns and GDP growth.
Mid and small caps in India are experiencing a relentless surge, driven by several post-pandemic themes: the "premiumization" of consumption boosting discretionary demand, government capital expenditure benefiting industrials and railways, the "Make-in-India" initiative lifting defense stocks, a retail trading boom energizing brokers and financials, and a significant rise in services exports.