The rise of the Indian stock market is a long-term process. From the early 1990s to the early 2000s, the Indian stock market gradually began to gain attention. From around 2003 to before the 2008 financial crisis, the market experienced a noticeable upward trend. However, the global financial crisis in 2008 hit the Indian stock market hard, leading to significant declines. After the crisis, from 2009 to early 2020, the market gradually recovered and entered another upward phase. Since the beginning of 2020, despite the impacts of the COVID-19 pandemic and the Russia-Ukraine war, the Indian stock market has demonstrated strong resilience. It not only quickly recovered from the initial downturn due to the pandemic but also continued to maintain an upward trajectory. Overall, India has sustained a long bullish market for over a decade, with the Sensex 30 index rising nearly 800 times since its establishment in 1979, achieving positive returns in nearly 80% of the years over 45 years. The past five years have been particularly impressive, with an annualized return exceeding 17%. Meanwhile, the NIFTY 50 index closed at 26,216.05 points, increasing nearly 400 times over 24 years, with an annualized return of over 11.71%. According to researchers at ANBOUND, who have conducted long-term tracking, there are three main factors behind this phenomenon.
First, the rapid and stable economic growth relies on demographic dividends and technological advancements. As an emerging economy, India has experienced relatively stable and fast economic growth in recent years. Its GDP growth rate has been among the highest in the world’s major economies, maintaining a high growth rate for several consecutive years. Since Narendra Modi took office in 2014, the country’s GDP has averaged a growth rate of 6%, except for the impact of the pandemic in 2020. In 2023, India’s GDP grew by 8.2% year-on-year, making it the fastest-growing economy among global economies. In the first half of 2024, India’s GDP growth rate was 7.2%.
It is important to note that demographic dividends and technological advancements form the foundation of India’s long-term economic growth. India has a large population base, and according to UN projections, it is expected to become the most populous country by mid-2023, with a total population estimated at 1.426 billion, including over 845 million people aged 20 to 64, creating a relatively healthy pyramid structure. At the same time, India is not particularly rich in bulk resources; its growth primarily relies on demand-driven factors and technological innovation. Historically, India’s economic growth has been mainly contributed by the tertiary sector, including finance and IT services, which account for over 55% of its economy. With the global trend of offshore outsourcing, its abundant pool of IT engineers supports the sustained high growth of the IT services sector. Meanwhile, the Indian government is vigorously promoting manufacturing, driving the development of industries such as construction, building materials, and steel through infrastructure projects, while also facilitating the transfer of supply chains in sectors like apparel and mobile phones.
Secondly, the government is vigorously promoting economic reforms, focusing on large-scale infrastructure and supporting manufacturing. The Modi administration's growth policies primarily center on significant infrastructure development and bolstering the manufacturing sector, with government investment being a major driver of India’s high economic growth. In terms of infrastructure, during the past decade in office, India has undertaken extensive infrastructure renovations, including modernizing transportation networks, improving urban facilities, and expanding digital infrastructure. By 2023, infrastructure investment had increased fivefold compared to 2014, with the national highway network expanding by 60%. The construction of the Bharatmala Pariyojna project has enhanced connectivity among India’s coasts, ports, and highways, while also significantly expanding metro, railway, and airport facilities. The number of airports has risen from 74 in 2014 to 158 by 2024.
Meanwhile, in terms of industrial policy, the Modi government launched the "Make in India" initiative to transform the traditionally service-dominated Indian economy. The goal is to increase India's share of global manufacturing from 3% to 5% by 2030, and to 10% by 2047. This includes promoting the privatization of state-owned enterprises, reducing direct government involvement in commercial activities, and gradually exiting certain non-strategic industries to enhance the operational efficiency of public enterprises. Starting in 2019, the Indian government began revising and consolidating several labor laws to simplify employment relationships and improve labor market mobility. These reform measures have increased operational efficiency for businesses and improved the investment environment in the market.
Finally, the government has strengthened financial market reforms to attract a continuous inflow of foreign capital. In recent years, the Indian government has implemented a series of policy adjustments and reforms in the financial market. For instance, the Indian stock market has strict requirements for listed companies and a rigorous delisting system, ensuring the quality of publicly traded firms. If a listed company is found to have financial fraud or underperformance, it will be subject to mandatory delisting. At the same time, the trading system in the Indian stock market is relatively flexible and favorable for retail investors. Retail investors operate under a T+0 trading system, while institutional investors follow a T+3 one.
In addition, the Indian stock market places a strong emphasis on investor protection. The exit buyback and its pricing mechanism safeguard the rights of public investors. The Indian stock exchanges appoint independent valuation teams to assess the stocks of companies that are forcibly delisted. These companies must buy back their shares from all public shareholders at the valuation price determined by the team within three months of the delisting decision, unless investors voluntarily choose to continue holding the shares. Attracted by strong economic growth and ongoing financial market reforms, foreign capital has consistently net bought Indian stocks over the long term. Between 2000 and 2023, foreign investors only had net sales in 2008, 2011, 2018, and 2022; in all other years, there were net purchases. In 2023 alone, the net purchase was approximately USD 21.4 billion, ranking fourth among annual net inflows of foreign capital. As of the end of January 2024, foreign portfolio investors (FPIs) held about 16% of the market capitalization of Indian stocks.
Overall, the long-term upward trend of the Indian stock market is underpinned by the rapid and stable growth of the Indian economy, which relies on demographic dividends and technological advancements. At the same time, India is actively promoting economic reforms, focusing on large-scale infrastructure and supporting manufacturing. Additionally, the Indian government has strengthened financial market reforms in recent years, attracting a continuous inflow of foreign capital.
It is worth noting that while the Indian stock market has a trend of long-term growth, it is still defined by ANBOUND’s founder Kung Chan as an emerging market country. For the West, India today is an alternative to the Chinese market, and this has artificially elevated India's position in the global market. In this context, the performance of the Indian economy and market will continue to experience fluctuations, similar to other emerging markets, and it will be affected by the country’s unavoidable political landscape and national conditions.
Final analysis conclusion:
For decades, the long-term upward trend of the Indian stock market has been driven by the rapid and stable growth of the Indian economy, relying on demographic dividends and technological advancements. At the same time, India has been actively promoting economic reforms, focusing on large-scale infrastructure development and supporting manufacturing. Additionally, this is also contributed by the Indian government’s strengthening of financial market reforms in the recent years to attract a continuous inflow of foreign capital.
