New Delhi [India], May 2 : The stock market reflects India's ascendance as an economic superpower with premium valuations, but challenges remain for inclusive growth, said a Geojit study.
A hot topic of discussion in global economic forums is the meteoric rise of India as an economic superpower. Over the past decade, India has steadily climbed the ranks of global economies, transitioning from the tenth to the fifth largest economy in the world, the study said.
Projections indicate it will soon claim the third spot, trailing only the US and China by 2027. With a current GDP of around USD 4 trillion, India is poised to double its GDP to approximately USD 8 trillion by 2032.
Dr VK Vijayakumar, economist, Geojit, noted the profound consequences of India's growth trajectory, particularly for the Indian stock market.
He traces the evolution of India's economy from the low-growth phase of 1950-80, marked by a strategy rooted in public sector dominance and comprehensive planning, to the subsequent liberalization era that began in the 1980s.
He said, "The growth rate we could achieve in the first three decades following independence, 1950 to 1980, was only 3.5 percent a year. Even though this growth rate was much better than the growth rate during the British period, it was much lower than the growth rates achieved by many other newly independent countries. A notable achievement of this period was the Green Revolution which made India self-sufficient in food grains."
The landmark economic reforms of 1991, initiated by the Narasimha Rao government, paved the way for liberalization, privatization, and globalization, catapulting India into a phase of rapid growth. Since then, India has consistently been the second fastest-growing large economy globally, with GDP growth rates exceeding 6 percent.
India's growth story is compelling. It is currently outpacing the growth rates of Japan and Germany, positioning itself to overtake them as the third-largest economy in the world.
According to projections by the IMF and various global investment banks, India is expected to achieve this milestone by 2027, with GDP reaching USD 8 trillion by 2032 and per capita income around USD 5000.
Despite these achievements, challenges remain. India's per capita income, at around USD 2,700, remains low, highlighting the need for inclusive growth.
The country is yet to achieve middle-income status, and while poverty rates have declined, a significant number of people still live in poverty.
Geojit stated, "India is the most expensive stock market in the world now. It can be rightly argued that the stock market is discounting the India Growth Story with premium valuation. So, India's potential to grow better than other large economies is getting factored in by the market. But it is important to understand that the market will discount only the immediate future, not the distant future."
One of the major challenges facing India is ensuring that its growth is inclusive and sustainable.
The focus must shift towards creating a large number of jobs, investing in world-class infrastructure, and implementing welfare programs to lift the poor and marginalized. Sustained high growth can generate the resources needed to meet these challenges.
The stock market, often seen as a barometer of economic sentiment, is currently reflecting India's growth potential with premium valuations.
It is the most expensive stock market in the world, indicating that investors are betting on India's growth story. However, it's crucial to note that market valuations reflect the immediate future, not the distant future.
Geojit argues that while India's potential is being factored into the market, investors should anticipate corrections along the way. However, for those looking to participate in long-term wealth creation, a simple strategy of remaining invested and continuing systematic investment is recommended.
The India growth story is indeed deserving of premium valuations, but navigating the journey will require patience and resilience.
As India continues its ascent among emerging economies, the focus must remain on fostering inclusive growth and addressing the challenges that lie ahead.
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