Our youth bulge could enlarge valuations too

Various factors have powered Indian stocks upwards and corporate earnings must keep up for a sustainable surge even if longer investment horizons start supporting larger PE ratios

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In big ways and small, the meta-narrative behind India’s economic rise and stock market boom has been falling into place ever since the country began to pay market economics more than academic attention after the Cold War ended in a Soviet loss and US victory. Bulls of the current bull run may display a recency bias in the inspiration they draw, but much of their optimism—as reflected in the BSE Sensex rising above 69,653 on Wednesday—is valid. Foreign institutional investors are back in action as buyers; their dithering in 2022 after yield gaps with safe US debt got squeezed now seems like old hat. An enlarged base of retail investors has held indices up, even as India’s economy has recovered from its covid contraction robustly enough to keep up a relatively pacy trajectory. After output lost to the pandemic was plugged in 2021-22, official GDP growth was placed at 7.2% in 2022-23, a rate that was beaten in the first half of 2023-24. This not only contrasts with India’s dismal pre-pandemic slowdown, corporate profits have upped their share in the o