While India remains one of the emerging markets worst affected by COVID-19, recording an extreme drop in the second quarter of the year and delivering the worst economic performance of the G20, a number of economic indicators now suggest signs of a recovery.

In August, the country’s Purchasing Managers’ Index registered its first expansion since March, a positive development for the manufacturing sector. Other encouraging signs include the improvement of mobility indicators, a rise in vehicle registrations and the growth of daily electricity usage. There is also no notable inflationary pressure as wholesale prices continue to contract despite rising retail prices and a drop in the speed of currency circulation. All of these developments paint a picture of an economic recovery, making the country attractive for long-term investment.

With the worst of global growth figures now likely behind us, international investor risk appetite has returned to Emerging Market Equities. Flows into Indian equities have already picked up, closing the gap to the major markets. This restoration of confidence has been fueled by the relaxation of ownership limits for foreign investors, which was put in place April 1st of this year, enabling the country to outperform all other emerging markets.

While the current price-earnings ratio sits at 27.9, driven by weak earnings over the past few quarters, analysts predict that in the next 12 months this will move to 23.1, an earnings growth of around 15%. This prediction is based on the expectation that the country's gross domestic product will recover by 7-10% by2021. Given the current signs of economic recovery this is a realistic assumption.

Though this market will remain volatile, it is expected to continue to perform well, particularly for investors buying into actively managed funds that pick and choose the right stocks.