India has been dubbed the "perfect" emerging market to invest in, but it can be tricky for those outside the country to gain access. CNBC Pro assesses the case for buying into this booming economy, the risks to consider — and how global investors can get involved. India's stock market has been making headlines this year, and for good reason. India's stock market is now the fourth-largest in the world , as measured by the total value of listed companies, and benchmark indexes have hit successive record highs this year. Its Nifty 50 and BSE Sensex indexes are both more than 20% higher over the last 12 months. The country's economy is also on the up. It's expected to grow 7.6% in the 2024 financial year, with IMF Executive Director Krishnamurthy Subramanian describing it as "easily" the fastest-growing economy in the world. India even managed to shrug off political concerns around this year's huge general election, with stocks soon recovering losses despite the failure of Prime Minister Narendra Modi's ruling Bharatiya Janata Party to secure an absolute majority in the lower house of Parliament . The bigger picture India is in a unique position, according to Kevin T. Carter, founder and CEO of emerging markets investment firm EMQQ Global. "India is the perfect emerging market," he said, speaking to CNBC by video call. "If we go back to why are we investing in emerging markets in the first place, this is the list: There are a lot of people, they're young, they're growing, and they want to buy stuff." Carter reels off statistics: India's economy is growing fast (its GDP exceeded analysts' estimates in the January-March quarter) and access to the internet is rising rapidly – India is the fastest-growing premium smartphone market in the world. Added to this, it has a vast number of young inhabitants: more than 40% of its population is under the age of 25 . Goldman Sachs , meanwhile, forecasts a jump in consumer spending, with 100 million people in the country expected to become affluent by 2027, up from 60 million currently. "India remains one of the best-performing equity markets this year, underpinned by the world's fastest-growing major economy and a resilient macro backdrop," said James Thom, senior investment director Asian equities at Abrdn, in a note to clients. "There's a real estate boom, improving consumer confidence, particularly in urban areas, and a robust infrastructure capex cycle, including early signs of a private capex revival. This can potentially sustain both economic momentum and corporate earnings growth." Kranthi Bathini, equity strategist at Wealthmills Securities, agreed that the domestic macroeconomic picture looks strong, with both corporate profits and tax revenues increasing. He acknowledged that some portfolio managers warn valuations look a "little bit stretched," but said the country's growth prospects should still prove favorable for overseas investors. Want to get access to India? What to know There are a variety of ways to get into the market and plenty of potential opportunities — with a few caveats. When it comes to individual investors, foreign-based non-Indians aren't allowed to directly buy stocks via online trading platforms, but can access the market via mutual funds and exchange-traded funds (ETFs). There are also ADRs and GDRs — American and Global Depositary Receipts — which allow overseas citizens to gain access to foreign stocks via their own countries' stock exchanges. But Arjun Jayaraman, head of quantitative research and portfolio manager at Causeway Capital, says there's not enough of them. "One of the big issues about investing in India for overseas investors is the lack of good representation in terms of ADRs or GDRs," he told CNBC by phone. This is quite different to China, for example, where big tech companies, such as Tencent , have ADRs, Jayaraman said. Mutual funds and ETFs "I would advise most people, if they really want to get exposure ... to the most exciting parts of India, to go through a fund," Jayaraman said. Indian stocks make up 21% of Causeway's emerging markets fund , the largest weighting after China, which has 27.4%. When it comes to ETFs, there are many options for international investors to track India's indexes. Some of the top ETFs in North America include the Columbia India Consumer ETF , the First Trust India NIFTY 50 Equal Weight ETF and the BMO MSCI India ESG Leaders Index ETF . In Europe, the list includes the iShares MSCI India UCITS ETF , which provides exposure to around 85% of the stock market, and the Xtrackers MSCI India Swap UCITS ETF Capitalisation 1C . In Singapore, the iShares MSCI India Climate Transition ETF invests in large and mid-sized companies with a focus on ESG (environmental, social and governance) factors. But Abrdn's Thom prefers actively managed funds over ETFs. "India is a stock picker's market with many listed companies, including some great small and mid-cap names that are not included in the MSCI India or other mainstream indices like Nifty," he said. Another way to get exposure to the country is via Indian stocks traded in the U.S. or U.K., such as travel company MakeMyTrip , which trades on the Nasdaq . Investors could also buy stocks in U.S. or European-listed companies that make significant revenue in India, like Nokia or broadband provider UTStarcom . Sectors India has major ambitions in manufacturing, infrastructure and technology, and analysts from Bank of America described the country as being "at the center of AI" in a May research note. BofA's strategists also expect consumption to grow: "India is likely at that point where China was 6-7 years ago in terms of an inflection point in discretionary income leading to consistent spend towards lifestyle upgrades," they wrote. In a note to investors, Citi strategist Surendra Goyal said he expects strong year-over-year growth in sectors including energy, autos, utilities and pharmaceuticals, and suggested performance in banks, industrials and staples would be "subdued." The bank's March 2025 target price for the Nifty index gives it 7% upside. Abrdn likes sectors based on several themes, including aspiration — where "premium consumption" is growing in autos, food and personal care — and financial inclusion (the country has a big focus on improving digital access). "Our exposure is spread across well-capitalised private sector banks and non-bank financial companies as well as good quality insurers," Thom said. EMQQ Global's Carter is very positive on internet stocks, given the government's investment in the so-called India Stack , the country's "digital public infrastructure" based on its identity program, that enables instant money transfers and myriad other functions. His firm's Internet & Ecommerce ETF includes holdings in tech holding company Info Edge and Reliance Industries , a sprawling conglomerate that operates in sectors ranging from oil production to digital services. Potential risks Politics — and Modi's continued push ahead with reforms — as well as currency fluctuations and stock valuations are all worth considering when investing in India. "The currency has been remarkably resilient this year," said Jayaraman. "In the face of the U.S. having high interest rates, you would have thought that India would have done worse this year, but it's actually held in pretty well." For the year to the end of March, the rupee fell 1.5% against the U.S. dollar , although this was markedly less than 2023's 8% slide. It has weakened only slightly since, although traders say the Reserve Bank of India has been intervening in the market to defend the rupee, Reuters reports. Jayaraman added that Modi's lack of supermajority could mean higher fiscal deficits if he comes under pressure to spend from his coalition partners. And if markets wobble, the rupee could come under pressure. "If that's the case, then there's pressure put on the central bank to lower rates in order to help growth, and that can put additional pressure on the currency," Jayaraman said. When it comes to valuations, Abrdn's Thom said they're looking stretched and described India as "relatively more expensive." "While India's growth potential is the fundamental reason why investors are willing to pay a premium in this market, nonetheless, judgement is required in terms of how much an investor is willing to pay for that growth," he said. Some market makers see Indian stocks as overvalued, with fund manager Jonathan Pines describing prices as " far too high ." Carter also acknowledges there are risks. "It won't be easy. I'm sure there will be some problems along the way, I think there will be an Indian bubble at some point. But right now, I just think it's an unmatched [opportunity] and it can't happen again," he said. Disclosure: Reliance Industries is the parent company of Network18 Group which owns CNBC TV-18, CNBC's local India partner. — CNBC's Ganesh Rao contributed to this report. Transform your portfolio with expert analyst ratings! Click here to join CNBC Pro .
