‘India could be third largest stock market by 2050’

At present, the equity markets of Brazil, Russia, India and China (BRICs) account for just 5 per cent of the combined market values of the United States, Britain, Japan and Germany. Although strong growth is expected in the BRIC markets, the US is expected to remain the largest market by 2050, accounting for about 45 per cent of the total stock market universe. China, however, will have risen to become the second largest market, at 25 per cent, and India will rank third, at more than 10 per cent.

The BRIC economies have potential to grow quickly from a relatively modest base, and real earnings growth in these economies is expected to outpace that of the more mature, developed markets. Labour costs can ensure relatively high returns on capital, while businesses can exploit new technology to catch up with their richer peers. The raising of new capital is also likely to be a powerful driver of the BRIC stock markets. Local currencies are also likely to appreciate in value due to foreign capital inflows, also boosting market values. ‘‘Our assumptions….have led us to conclude that the Brazilian and Russian markets are likely to grow by an average annual rate of around 7 per cent in real terms expressed in US dollars, while India and China should achieve close to 10 per cent growth,’’ the report said.

However, Standard Life also highlighted key risks in the BRIC markets, such as the quality of national governments’ macro-economic policies, willingness to deregulate financial institutions, the prevalence of bad debts and protectionist trade practices.