The investment opportunities in India

India is rapidly becoming one of the world’s economic powerhouses.

India’s economy grew by 6.5% in 2025, according to IMF data, making it the fifth-fastest growing that year. With a GDP of over $4.1 trillion it is also the sixth-largest global economy.

It overtook China as the world’s largest country by population in 2023, and its growing population – particularly its expanding middle class – underpins much of its current and expected economic growth.

“A young working-age population, urbanisation and rising incomes should continue to expand the consumer base and gradually shift spending towards financial services, healthcare and other discretionary categories,” said Chetan Sehgal, lead portfolio manager at Templeton Emerging Markets Investment Trust.

Its economy has been transformed over the last decade by reforms such as the goods and services tax (GST), a single indirect tax which simplified the pre-existing tax system in 2017, and the unified payments interface (UPI), a protocol that facilitates instant digital payments on mobile devices using a unique digital ID.

“Registered GST taxpayers have increased from around 6.7 million in 2017 to 16.5 million as of May 2026, while UPI processed more than 240 billion transactions in FY2025/26 and had more than 550 million users by June 2026,” said Sehgal. “This brings more consumers and businesses into the formal system, creates digital transaction histories and expands the addressable market for credit, insurance, payments and savings products.”

All of this amounts to a powerful shift that could create an enormous amount of value for the country’s consumers and investors.

“India today reminds us of China’s internet opportunity 20 years ago – but with artificial intelligence (AI) potentially accelerating the transformation,” said Kevin Carter, founder and chief investment officer of investment manager EMQQ Global.

What’s driving India’s stock market?

India’s stock market has come up against greater challenges this year than it has faced in recent times, particularly the consequences of the conflict in Iran.

Between the start of the year and 19 August, the MSCI India index fell 9.3%, reflecting a range of macroeconomic headwinds that mostly result from the US-Iran conflict.

“India has been impacted by volatility in crude [oil] prices as a result of ongoing wars,” said Sehgal, “as well as by cost inflation in the AI supply chain, where India is a major importer.”

Since hitting a low of 1,049.11 at the end of March, though, the index has staged something of a recovery, gaining 10.8% between the end of the month and 19 August.

“Indian stocks have stabilised after a bruising first quarter and are proving resilient to both the Iran war and the ‘AI-takes-all’ market environment,” said Peter Clark, chief executive at global wealth manager Bentley Reid.

“Though cyclical headwinds remain there are growing signs that the record foreign selling of Indian equities is over with $2 billion of net inflows being recorded in June,” Clark added.

He highlighted that the MSCI Emerging Market index is dominated by Taiwanese and Korean chipmakers. Three companies – Taiwan Semiconductor, Samsung Electronics and SK Hynix – account for more than 28% of the index as of 31 July.

“If the AI trade ever reverses, ‘AI laggard’ is a moniker the Indian market may be happy to own,” said Clark.

Which are the most appealing sectors in India’s stock market to invest in?

Though it is perceived to be light when it comes to AI, India’s stock market benefits from having several sectors where it is a major global player.

IT services

For years, IT services companies have been at the forefront of India’s economic growth. Companies like Tata Consultancy Services (MUMBAI:TCS), Infosys (MUMBAI:INFY) and Wipro (MUMBAI:WIPRO) are among the world’s largest, with combined market capitalisations of over $100 billion.

Despite fears that AI could disrupt this market, Sehgal still views it as a significant sector for the country. “India retains significant advantages from its large skilled workforce, global delivery capabilities and deep client relationships,” he said. “We believe that, as enterprises adopt AI in their workflows, there will be opportunities for such companies to develop new solutions and move further into higher-value consulting and transformation work.”

Financial services and banking

One of the most significant impacts of UPI is that it brought a population of Indian consumers that had previously been largely unbanked into the mainstream financial system – and continues to do so.

“As more households and businesses enter formal payment and tax systems, banks gain greater visibility over customers and cash flows, supporting credit underwriting and the cross-selling of savings, insurance and other financial products,” said Sehgal.

Sehgal picked out ICICI Bank (MUMBAI:ICICIBANK) as an example of the kind of bank he favours: “well-managed private-sector banks with strong deposit franchises and disciplined underwriting”.

Pharma and healthcare

“Healthcare remains a structural opportunity,” said Sehgal. “Rising incomes, greater insurance penetration and increasing expectations for quality of care should support demand across hospitals, health insurance and pharmaceuticals.”

India has also historically been a strong producer of pharmaceuticals and could benefit from further demand from the world’s largest companies.

“There’s a need from the multinational [pharmaceutical companies] to have an alternative supplier at scale,” Gabriel Sacks, manager of the Aberdeen Asia Focus fund, told the MoneyWeek Talks podcast. “When you don’t look at China, then you start to look at places like India.”

Consumer discretionary spending

India’s growing middle class and rising smartphone adoption is also creating rapid growth in consumer discretionary spending, “particularly in areas such as food delivery, convenience and other digitally enabled services” Sehgal said.

Coupled with the GST reducing tax rates on consumer goods, discretionary spending and demand for premium offerings are expected to rise.

Are Indian stocks overpriced?

There are clearly opportunities for investors here, but given its size relative to other emerging markets, India’s stocks don’t necessarily fly under the radar. The biggest challenge to would-be investors in India over recent years has been that its companies are relatively expensive.

According to the website World PE Ratio, India’s stock market has an average price/earnings (P/E) ratio of 22.4 as of 18 August. That makes it more expensive than the Dow Jones Industrial Average, which tracks 30 US large cap stocks with an average 21.5 P/E ratio.

The good news is that prices have come down this year. The MSCI India Index fell 8.9% in 2026 through to 18 August.

“Recent underperformance relative to other emerging markets has also reduced India’s valuation premium to below its long-term average,” said James Thom, lead manager of Aberdeen New India Investment Trust. “The energy crisis has eased, liquidity conditions are becoming more supportive and policymakers are refocusing on the reform agenda… In our view, improving fundamentals combined with more reasonable valuations create a compelling backdrop for the market.”

How to invest in India

It can be difficult for DIY investors based overseas to access Indian stocks directly, though this may depend on your broker.

For most investors, using a fund or investment trust is likely to be the best means of gaining exposure.

Aberdeen New India Investment Trust (LON:ANII) targets “world-class, well governed companies at the heart of India’s growth”.

Banks ICICI Bank and HDFC Bank (MUMBAI:HDFCBANK), telecoms business Bharti Airtel (MUMBAI:BHARTIARTL) and automaking conglomerate Mahindra & Mahindra (MUMBAI:M&M) are the trust’s top holdings as of 31 May.

Templeton Emerging Markets Investment Trust (LON:TEM) has 8.3% of its portfolio invested in India as of 31 July. ICICI Bank is its largest Indian holding, accounting for 2.5% of the portfolio.

EMQQ Global issues the India Internet ETF (LON:INQP) which specifically targets the opportunities in India’s expanding internet economy. Top holdings as of 19 August include food delivery business Eternal (formerly Zomato), non-banking financial company Bajaj Finance and Reliance Industries, a conglomerate that includes the country’s largest telecoms operator, Reliance Jio.

The fund “focuses on the digital disruptors across fintech, e-commerce, quick commerce, online travel and consumer platforms,” said Carter. “These companies are already taking share from traditional businesses, and AI should accelerate that by lowering costs and improving monetisation.”