The possibilities for investment in India

India has one of the fastest-growing economies in the world and the largest population

Investors can take advantage of this.

India is quickly emerging as a major economic force in the world.

According to IMF data, India's economy expanded by 6.5 percent in 2025, ranking fifth in terms of growth. It is the sixth-largest economy in the world, with a GDP of more than £4.1 trillion.

In terms of population, it surpassed China in 2023, and a large portion of its present and anticipated economic growth is driven by its expanding middle class.

According to Chetan Sehgal, lead portfolio manager at Templeton Emerging Markets Investment Trust, "a young working-age population, urbanization, and rising incomes should continue to expand the consumer base and gradually shift spending toward financial services, healthcare, and other discretionary categories."

Watch the entire video here: Over the past ten years, reforms like the goods and services tax (GST), a single indirect tax that streamlined the previous tax system in 2017, and the unified payments interface (UPI), a protocol that enables instantaneous digital payments on mobile devices using a unique digital ID, have completely changed the country's economy.

According to Sehgal, "the number of registered GST taxpayers increased from approximately 6.7 million in 2017 to 16.5 million as of May 2026, while UPI processed over 240 billion transactions in FY2025/26 and had over 550 million users by June 2026." As a result, the addressable market for credit, insurance, payments, and savings products grows, more businesses and consumers enter the formal system, and digital transaction histories are created."

In the grocery store, there is a Paytm and BHIM UPI board for online purchases.

Since its inception, UPI has enabled hundreds of millions of Indian customers to make digital payments.

All of this adds up to a significant change that could generate enormous value for the nation's investors and consumers.

"With artificial intelligence (AI) potentially accelerating the transformation, India today reminds us of China's internet opportunity 20 years ago," stated Kevin Carter, founder and chief investment officer of investment manager EMQQ Global.

What motivates the Indian stock market?

This year, India's stock market has encountered more difficulties than it has in the past, especially the fallout from the Iranian conflict.

The MSCI India index dropped 9.3% between the beginning of the year and August 19. This decline was caused by a number of macroeconomic challenges, the majority of which are related to the US-Iran conflict.

"Crude oil price volatility due to ongoing wars and cost inflation in the AI supply chain, where India is a major importer, have affected India," Sehgal stated."

However, the index has somewhat recovered since reaching a low of 1,049.11 at the end of March, rising by 10.8 percent between the end of the month and August 19.

The CEO of international wealth management firm Bentley Reid, Peter Clark, stated that "Indian stocks have stabilized after a bruising first quarter and are proving resilient to both the Iran war and the AI-takes-all market environment."

"With £2 billion in net inflows recorded in June, there are growing signs that the record foreign selling of Indian equities is over, even though cyclical headwinds still exist," Clark continued.

He pointed out that Taiwanese and Korean chipmakers dominate the MSCI Emerging Market index. As of July 31, three businessesTaiwan Semiconductor, Samsung Electronics, and SK Hynixaccounted for over 28% of the index.

"The Indian market might be happy to own the moniker AI laggard if the AI trade ever reverses," stated Clark.

Which sectors of the Indian stock market are the most desirable to invest in?

India's stock market benefits from having a number of industries where it is a significant global player, despite the fact that it is thought to be light in terms of AI.

Services for IT.

Businesses that provide IT services have long led India's economic expansion. With combined market capitalizations of more than £100 billion, companies like Wipro (MUMBAI:WIPRO), Infosys (MUMBAI:INFY), and Tata Consultancy Services (MUMBAI:TCS) are among the biggest in the world.

Sehgal continues to see AI as a vital industry for the nation despite concerns that it might disrupt this market. He stated, "India retains significant advantages from its large skilled workforce, global delivery capabilities, and deep client relationships." "We think there will be chances for businesses to create new solutions and advance into higher-value consulting and transformation work as they integrate AI into their workflows."

Banking services and finance.

One of UPI's most important effects is that it allowed a group of Indian consumers who were previously mostly unbanked to join the mainstream financial system and are still doing so.

"Banks gain greater visibility over customers and cash flows as more households and businesses enter formal payment and tax systems, supporting credit underwriting and the cross-selling of savings, insurance, and other financial products," stated Sehgal.

The type of bank that Sehgal prefers is ICICI Bank (MUMBAI:ICICIBANK), which he described as "well-managed private-sector banks with strong deposit franchises and disciplined underwriting."

Pharmaceuticals and medical care.

According to Sehgal, "healthcare remains a structural opportunity." Demand for hospitals, health insurance, and pharmaceuticals should be supported by rising incomes, increased insurance penetration, and rising standards for care quality."

Additionally, India has a long history of producing pharmaceuticals and could profit from increased demand from the biggest corporations in the world.

The manager of the Aberdeen Asia Focus fund, Gabriel Sacks, stated on the BFIA Talks podcast that "the multinational pharmaceutical companies have a need to have an alternative supplier at scale." "You start looking at places like India when you stop looking at China."

Consumer spending that is not required.

Consumer discretionary spending is growing quickly in India due to the country's expanding middle class and growing smartphone adoption, "particularly in areas such as food delivery, convenience and other digitally enabled services," according to Sehgal.

Demand for premium products and discretionary spending are anticipated to increase in tandem with the GST's reduction of consumer goods tax rates.

Are Indian stocks too expensive?

Although there are undoubtedly investment opportunities here, Indian stocks aren't always overlooked due to their size in comparison to other emerging markets. The most significant obstacle facing potential investors in India in recent years has been the comparatively high cost of its businesses.

As of August 18, the average price/earnings (P/E) ratio for the Indian stock market was 22.4, according to the website World PE Ratio. Because of this, it is more costly than the Dow Jones Industrial Average, which has an average P/E ratio of 21.5 and tracks 30 large-cap US stocks.

Prices have decreased this year, which is good news. Up until August 18, 2026, the MSCI India Index dropped 8.9%.

"India's valuation premium has also decreased to below its long-term average due to recent underperformance relative to other emerging markets," stated James Thom, lead manager of Aberdeen New India Investment Trust. "We believe that better fundamentals combined with more reasonable valuations create a compelling backdrop for the market. The energy crisis has subsided, liquidity conditions are improving, and policymakers are refocusing on the reform agenda."

How to put money into India.

DIY investors from other countries may find it challenging to directly access Indian stocks, though this may vary depending on your broker.

Using a fund or investment trust is probably the best way for most investors to get exposure.

"World-class, well governed companies at the heart of Indias growth" are the focus of Aberdeen New India Investment Trust (LON:ANII).

As of May 31, the trust's top holdings were banks ICICI Bank and HDFC Bank (MUMBAI:HDFCBANK), telecom company Bharti Airtel (MUMBAI:BHARTIARTL), and automaker Mahindra and Mahindra (MUMBAI:M&M).

As of July 31, Templeton Emerging Markets Investment Trust (LON:TEM) had 8.3% of its portfolio invested in India. Its largest Indian holding, ICICI Bank, makes up 2.5 percent of the portfolio.

The India Internet ETF (LON:INQP), issued by EMQQ Global, focuses on the prospects in India's growing internet economy. As of August 19, the company's top holdings were the food delivery service Eternal (formerly Zomato), the non-banking financial firm Bajaj Finance, and Reliance Industries, a conglomerate that includes Reliance Jio, the biggest telecom provider in the nation.

Carter stated that the fund "focuses on the digital disruptors across fintech, e-commerce, quick commerce, online travel and consumer platforms." "These businesses are already gaining market share from more established companies, and AI should speed that up by reducing expenses and increasing revenue."