Fireworks marking the Hindu celebration of Diwali – the festival of lights –have become a highlight of the autumn months in parts of Britain in recent years. Festivities began last weekend when more than 35,000 people gathered in Leicester for the switching on of the city’s Diwali lights.

In India the festival is a national holiday and starts with Dhanteras, the day on which most Indian business communities begin their financial year.

But for those who invest in India, there’s been little to celebrate in recent times. “India suffered during the emerging markets rout in the summer as concern about slowing growth and its twin deficits resurfaced,” pointed out Avinash Vazirani, manager of the Jupiter India fund.

“However, a more sanguine view of its prospects has begun to take hold since Raghuram Rajan’s arrival as the new governor of the central bank. He has shown himself to be a determined reformer, willing to press forward with unpopular decisions.”

Chief among these was Mr Rajan’s decision to raise interest rates. The move took everyone by surprise and dismayed business groups. But he also lowered the cost of funds for banks, and eased other restrictions imposed in July designed to support the currency.

“Economists and the government seem to be becoming more positive about India’s ability to manage its current account deficit. Meanwhile, the good monsoon season, considered to be the best since 1994, should help reduce food inflation and have an impact on GDP growth in the agricultural sector,” said Mr Vazirani, who said there are good opportunities to acquire strong companies at reasonable valuations.

Angus Tulloch of First State took a recent trip to India. “That reaffirmed that quality companies can flourish in spite of a poor political and economic backdrop,” he said.

“In addition to visionary owners, who appreciate the benefits of looking after minority shareholders well, Indian family businesses seem to have an unusually positive approach to real partnerships.”

The trip encouraged him to add stakes in trusted family businesses with strong franchises such Godrej Consumer and Titan Industries. “The economic and political weaknesses of India are a concern but are manageable over the longer term,” he said.

But Rajendra Nair, fund manager of JPMorgan India, warned India is vulnerable to external factors. “Its current account deficit has led to significant currency volatility, especially in the current risk-off environment where we are also seeing capital outflows,” he said.

However, he said valuations of the Indian stock market are at near-historical lows. “We believe that investment into the Indian market offers upside both in terms of currency and market appreciation,” he said.

Juliet Schooling Latter, research director at Chelsea Financial Services, said: “I still think Indian equities are a good long-term investment but they are likely to remain volatile, particularly in the shorter term.

“The country has a number of structural issues and a deficit that needs need to be addressed, but with next year’s election looming, minds are focused more on getting re-elected than sorting things out.

“It’s really an area for higher-risk investors though who can afford to ‘invest and forget’ for a while – either that or do monthly investments so they can stomach the volatility.”