India’s equity markets have risen by about 20% since the start of 2023 with inflows of both homegrown and foreign investments.
Global investors’ desire to own a piece of the brightest market in the emerging world has been the catalyst, says Remi Olu-Pitan, head of multi-asset growth and income at asset manager Schroders.
“A large chunk of the country’s appeal right now is that it is not China,” said Jeff Weniger, head of equity strategy, WisdomTree Investments.
While China’s efforts to stabilize its economy and markets have yielded little so far, investors have been returning to mainland markets this year on hopes of an eventual rebound.
The struggling Chinese markets and the expectation that Prime Minister Narendra Modi will win a third term in the upcoming elections adds to the sentiment that India is a good market for long term investors.
While risks like lofty valuations and political uncertainty exist, investors seem willing to overlook them given India’s growth potential. Monthly inflows into domestic retail investment plans and buying by institutional investors have provided tailwinds. Goldman Sachs and local brokerages foresee further gains in Indian indexes.
However, the market has become very expensive with a forward P/E ratio of 22.8, well above the U.S. and China. While earnings growth is expected to remain strong, global investors’ desire for exposure has meant an underappreciation of risks. Investors are bracing for potential volatility around the elections in particular. Stock regulator SEBI has already expressed caution about overvalued mid/small-caps and concentrated foreign holdings.
Elections in May are the top risk – while Modi is favored, a weaker than expected result could dampen economic reform momentum. Overall, India appeals as a high-growth alternative to China, but risks around valuations, elections, and dependence on continued strong earnings exist. Investors are betting India’s structural strengths will outweigh cyclical risks, but the market’s lofty expectations raise the stakes around delivering solid growth.
Last updated: December 26th, 2025
