Mumbai, India’s financial capital, has seen many new faces over the past year, with chief executives of global banks arriving to tour stock exchanges, buy property and hire new staff.
A post-pandemic boom has seen India’s stock market value rise to about $5 trillion, putting it on par with Hong Kong’s. India’s economy is one of the fastest growing in the world. Wall Street can no longer ignore India.
Our gateway is Mumbai, a port city of 26 million people including its suburbs that has been reborn, with suspension bridges spanning not only the waterways but also its notorious slums, and new metro lines running beneath its Art Deco and Indo-Saracenic facades and rumbling commuter trains.
Mumbai has been India’s commercial capital for 80 years, but until the past two years it was little known in the global financial world.
Now North American pension managers, sovereign wealth funds from the Gulf and Singapore, Japanese banks and private equity firms are clamoring to get in on India’s growth. Veterans and newbies alike can list a laundry list of reasons why India’s rise is inevitable.
Making money is easier said than done, especially since Indian investors were here first and their stock prices are high compared to the current profits of Indian companies.
Foreign investors have yet to put in enough money. Mumbai’s market was volatile in May when pro-business Prime Minister Narendra Modi fought for re-election. He is expected to win, but the uncertainty has made investors further afield cautious.
Despite the flood of hot money flowing into the Mumbai market, India remains a tricky place for foreign companies and direct investment is risky. Spending demand from India’s potentially huge consumer base has been weaker than expected, leaving those at the top of the income hierarchy spending more than ever while hundreds of millions remain near the bottom.
The reason investors are excited about India is simple: The Indian economy has strengths that other emerging economies currently lack. “India has solid growth, a stable currency and fiscal discipline, so foreign clients are drawn to India,” said an Indian banking executive, who asked not to be identified because he works closely with the government.
If India is a good image for global investors, China and Russia are bad images. China’s miracle growth engine is stalling after 30 years of full throttle, with trade war threats becoming commonplace. And Russia has effectively fallen off the list of promising emerging economies after invading Ukraine in 2022 and drawing sanctions from the United States, Europe and their allies.
Bankers said that was one of the reasons investors were putting pressure on Wall Street to pump huge amounts of money into India.
MSCI, the leading emerging markets index launched by Morgan Stanley, has increased India’s weighting to more than 18% from 8% in 2020, while reducing China’s. And it’s not just stocks. In June, JPMorgan Chase will add Indian government bonds to its emerging markets index. The two changes mean mutual funds are buying more Indian financial assets.
Aashish Agarwal, India head of investment bank Jefferies, who has been trading in Mumbai for more than 20 years, said investing in India was a no-brainer because Indian stocks have outperformed Chinese ones, and the market has a wider range of companies than many other emerging markets, he said.
“You can’t think of South Korea without Samsung, you can’t think of Latin America without commodities,” Agarwal said. “India is probably the most balanced outside the U.S. on this indicator.”
The outlook is also bright for Kevin Carter of Lafayette, California, who started an investment company called EMQQ Global to sell exchange-traded funds that make it easier for ordinary people to invest in emerging markets. One fund focused on India’s internet and e-commerce sector has risen in value nearly 40% in the past year.
He said India has the ingredients that have historically underpinned the success of emerging markets, particularly a large young population and a growing economy that is driving people to spend more.
With a population of over 1.4 billion, India is the world’s most populous country. Unlike their European and East Asian counterparts, most Indians are of working age or approaching working age. India’s economic growth rate hovers around 7%, which compares favorably with the global average of 3.2%.
Some investors are feeling a sense of déjà vu, recalling a time about 15 years ago when India last seemed poised to overtake China’s economic growth rate.
Those who believed the Indian hype ended up being disappointed. From 2008 to 2020, China’s per capita income grew four-fold, while India’s grew 2.5-fold. As a result, India is poorer compared to the rest of the world.
According to the International Monetary Fund’s latest calculations, India ranks 138th in the country income rankings, between the Republic of Congo and Nicaragua. China ranks 65th. But India has been climbing the ranks at a much faster pace than China.
On the other hand, India is spending heavily on public infrastructure, which has been a hallmark of Prime Minister Modi’s decade-long government policy.
Mumbai had just three high-rises in 2008, but will have hundreds by the end of this year. The city’s center has shifted from downtown to Bandra Kurla Complex (BKC), a purpose-built building in Midtown that’s a spaghetti sprawl of concrete. One BKC Tower, home to Bank of America, Swiss insurance giant Swiss Re and many other companies, was bought by Blackstone, the world’s largest private equity group, for a reported $300 million in 2019.
Mumbai is also home to the stock market, naturally, drawing the savings of India’s rapidly expanding investor class. Banks have made it easier for middle-income Indian families to invest directly. Regulators want to rein them in after many novice investors lost money in risky trades in derivatives, investments that are linked to other securities.
A bigger test for the Indian economy will be whether it attracts more foreign direct investment — investors and companies able to buy entire private companies.
Nivruti Rai, managing director of Invest India, a joint venture between the commerce ministry and private chambers of commerce, is trying to ease that path. Having worked for Intel for nearly three decades in India and the United States, Rai is well suited for the job.
“I’m a woman, I come from a multinational tech company,” she said, “and I’m based in India. It’s all about the message.”
Longer-term foreign funding would help strengthen and stabilize the Indian rupee. Investors providing such funding also tend to bring technical expertise.
“There may be a lack of capital and in some places there may also be a lack of technology,” she said.
Rai has set a lofty target of $100 billion in foreign direct investment, higher than India recorded its all-time high in 2021 and much higher than it is now. Inflows fell 16.8% last year to just over $28 billion. Foreign investment contracted in many places around the world in 2023, but India was particularly hard hit, as was China. Still, Rai predicts a new cycle of investment activity led by Indian companies in medical technology, clean energy and artificial intelligence.
Prime Minister Modi has pledged to expand India’s economy tenfold by 2047, the 100th anniversary of India’s independence. To get there, India will need to grow at a faster rate, Rai said, which means more “investors that we’re trying to bring in.”
