India: Long term stock market outlook

There has been considerable talk in recent days about the Goldman report predicting that emerging markets will total 55% of world stock market capitalization in 2030 compared with 31% today. The largest markets are then predicted to be China, the US, and India, in that order, with China growing from today’s $5 trillion to $41 trillion (n.b. all three markets are valued at about 100% of GDP presently.) This would be an impressive 8X increase. Even more interesting, however, is the position of India as 2030’s 3rd largest market in the forecast. Since India’s population will soon be the same as China’s, and China’s demographics are much less favorable (the workforce will begin declining in 2014,) it is reasonable to think that India will play a bit of catch up. In that case, if its market capitalization reaches $17 trillion in 2030 (my estimate, assuming GDP/capita is only 25% of China’s then compared to 50% today, which may be too conservative) then the increase will be 13X from today’s $1.3 trillion. Of course, twenty years is a long time, and long term investors should remember that life on earth may be destroyed by a giant meteor collision before then, depressing valuations.