How to Play India’s Stock Market Momentum

There are two reasons that more gains could be in the pipeline: the present and the future. The present is gelling as few would have imagined last spring, when India’s ghastly Delta wave gripped global attention. Recorded Covid-19 deaths have plunged 95% from a peak in May. Three-quarters of the adult population has received at least one vaccine injection.

The economy is roaring back as a result, on track to grow 9.5% this year and 8.5% in 2022, according to the International Monetary Fund. Interest rates are at a record-low 4%. A $630 billion stash of currency reserves and current account surplus should allow the central bank to tighten gradually without tanking the rupee.

Low rates plus pandemic isolation have doubled the roster of Indian retail investors to 40 million, says Venkat Pasupuleti, portfolio co-manager for India at Dalton Investments. Prime Minister Narendra Modi’s government is delivering long-anticipated privatization. It just flogged Air India to a private investor, and a $10 billion-plus IPO for Life Insurance Corporation of India is expected early next year.

“We are actually seeing a government that is making promises and keeping those promises,” says Jimeet Modi, CEO of Samco Securities in Mumbai. “Markets continue to look exciting.”

Then there’s the future. India’s digital economy is roughly where China’s was in 2014, when

Alibaba Group Holding

(BABA) went public, says Rishi Kapoor, co-CEO of private-equity firm Investcorp. The digital economy accounts for about 10% of India’s gross domestic product, compared with 40% in today’s China. One in 10 Indians shopped online prepandemic; nearly half of all Chinese do.

Covid was the starting gun for catching up. “The inflection point for India is now,” Kapoor says. “We have made more new investments there than anywhere in the world since 2019.”

The problem is that new Indian tech names are pricing themselves like they already were…