Investment Adventures in Emerging Markets


Update on India: Time to take another look

India’s stock market has underperformed global markets overall as well as some of its emerging market regional peers so far this year. However, there are signs that perhaps the tide has turned, and investors may be taking another look, according to Franklin Templeton Emerging Markets Equity’s Sukumar Rajah. He shares his latest outlook in light of recent events.

India’s economy has been resilient in the face of recent challenges, including the banking turmoil impacting the United States and Europe. India’s gross domestic product (GDP) is expected to grow 5.9% in 2023, on the back of 6.8% growth in 2022.1 Contrast that with negative numbers anticipated in parts of Europe this year and growth of only 1.1% seen in the United States—with many forecasters anticipating a recession there as well.

Meanwhile, Indian stocks have recently underperformed—the MSCI India Index declined in the first quarter of 2023, while the MSCI All-Country World Index, a global stock market proxy, was up more than 7%.2 In March, investors pulled back from perceived “risk assets” in the wake of the banking turmoil in other parts of the world, but Indian companies—particularly technology companies—faced other challenges.

The Indian information technology (IT) sector represents a sizable part of India’s stock market and has been growing in recent years. Indian companies have been able to capture a more substantial portion of the global IT spending pie. It used to be a small sector, with a small share, and thus able to grow via gains in market share, even when the pie was shrinking. But as Indian companies in the space have grown in size and importance globally, they are now more exposed to global issues. As such, growth rates for many Indian companies may be lower than in the past, but I think the long-term prospects still look good. That said, as investors, we have to be selective. The risk profiles of companies differ depending on how diversified they are, the type of clientele they are exposed to, etc.


Some analysts surmised that the valuations for Indian stocks didn’t make sense in a lower-growth environment, and thus the market needed to correct. Currently, the price-earnings ratio for Indian stocks (based on the MSCI India Index) stands at 24.13, higher than the MSCI Emerging Markets Index, at 12.41, or the MSCI All Country World Index, at 18.30.3

As investors, we discount cash flows based on an appropriate tapering growth rate to compute the intrinsic value of companies. In the IT sector for example, we see reasonable upside potential for some, but not all, so we need to be selective as we invest. Midcap IT companies could see improved prospects if they are more exposed to clients that are growing very fast, but smaller companies tend to come with a higher risk profile.

Where the penetration is high in any sector, earnings growth rates may be challenged as these companies are most exposed to global cyclical issues; IT services being an example. In other areas of the market, generic drugs have been facing such challenges for some time, so some of these companies are moving to specialty products that offer a better opportunity to increase market share. Emerging sectors where India is trying to penetrate global markets also offer opportunities for investors, including financial services support, software as a service, electronics, solar equipment, chemicals and education.

While earnings growth for sectors like IT services might slow down due to some of the above discussed factors, growth is accelerating or being maintained in a variety of sectors due to robust domestic demand and/or growing opportunities to export. I would anticipate mid-teens earnings growth for fiscal year 2024 (year ending March 2024), which is still respectable and probably represents longer-term potential as well.4

Economic and market resilience

From a macro perspective, India’s economy has become more resilient, and the current account deficit has declined from prior peak periods. The fiscal situation is better, the risk profile of the economy has improved, and India is in a position to generate foreign exchange earnings. Inflation has also been on the decline, with the March Consumer Price Index coming in at 5.66%, its lowest level in over a year.  India’s Manufacturing Purchasing Managers Index stood at 57.2% in April, a four-month high.

That said, the world has changed, supply chains have changed, and price pressures are likely to continue in the developed world. This might mean that global interest rates might not return to the levels we have seen in the last decade. While this could imply that emerging markets might not be awash in liquidity, markets like India with a sustainable growth story for a variety of companies and sectors might see good upside potential driven by organic growth and resilience.

Overall, I think the market is still very attractive compared with other markets in the region, and I believe the recent underperformance is unlikely to continue. I think India has an opportunity to become even more resilient, and domestic investor net inflows should continue as a result. We are also seeing signs of global investors looking to allocate funds to India on a standalone basis. That should change the market picture materially.

Many investors are not well informed of the changes that India has seen in the last few years and are yet to understand how differentiated the India story is. Few countries can sustain GDP and corporate earnings growth at high levels for decades, and therein lies the unique opportunity India offers.


All investments involve risks, including the possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested.

Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions.

Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in an investment portfolio adjust to a rise in interest rates, the value of the portfolio may decline. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions.

Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments. Investments in emerging markets, of which frontier markets are a subset, involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. To the extent a strategy focuses on particular countries, regions, industries, sectors or types of investment from time to time, it may be subject to greater risks of adverse developments in such areas of focus than a strategy that invests in a wider variety of countries, regions, industries, sectors or investments.


This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. This material may not be reproduced, distributed or published without prior written permission from Franklin Templeton.

The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The underlying assumptions and these views are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realized. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is not necessarily indicative nor a guarantee of future performance. All investments involve risks, including possible loss of principal.

Any research and analysis contained in this material has been procured by Franklin Templeton for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Data from third party sources may have been used in the preparation of this material and Franklin Templeton (“FT”) has not independently verified, validated or audited such data.  Although information has been obtained from sources that Franklin Templeton believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at any time without notice. The mention of any individual securities should neither constitute nor be construed as a recommendation to purchase, hold or sell any securities, and the information provided regarding such individual securities (if any) is not a sufficient basis upon which to make an investment decision. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.

Products, services and information may not be available in all jurisdictions and are offered outside the U.S. by other FT affiliates and/or their distributors as local laws and regulation permits. Please consult your own financial professional or Franklin Templeton institutional contact for further information on availability of products and services in your jurisdiction.

Issued in the U.S. by Franklin Distributors, LLC, One Franklin Parkway, San Mateo, California 94403-1906, (800) DIAL BEN/342-5236, – Franklin Distributors, LLC, member FINRA/SIPC, is the principal distributor of Franklin Templeton U.S. registered products, which are not FDIC insured; may lose value; and are not bank guaranteed and are available only in jurisdictions where an offer or solicitation of such products is permitted under applicable laws and regulation.


1. Source: IMF World Economic Outlook, April 2023. There is no assurance that any estimate, forecast or projection will be realized.

2. Source: MSCI. The MSCI India Index is designed to measure the performance of the large and mid-cap segments of the Indian market. With 114 constituents, the index covers approximately 85% of the Indian equity universe. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator or a guarantee of future results. MSCI makes no warranties and shall have no liability with respect to any MSCI data reproduced herein. No further redistribution or use is permitted. This report is not prepared or endorsed by MSCI. See for additional data provider information.

3. Source: MSCI. As of April 28, 2023.

4. There is no assurance that any estimate, forecast or projection will be realized.

Get Content Alerts in My Inbox

Receive email alerts when a new blog is posted.