Written by: Taranjit Singh
Date: 27-11-2023
The market capitalization of companies listed on Indian exchanges has witnessed an extraordinary surge of $1 trillion in less than three years, solidifying the South Asian nation as one of the most dynamic performers in the region and the emerging world.
India's key stock benchmarks, already trading at all-time highs, have soared by over 13% this year, poised for an unprecedented eighth consecutive year of gains. In stark contrast, Hong Kong's primary equity index has plummeted by 17%, resulting in a market value of less than $4.7 trillion.
India's ascent to becoming the world's most populous country earlier this year has been accompanied by its emergence as the fastest-growing major economy. Capitalizing on its political stability and robust domestic growth potential, India has been actively pursuing strategies to attract global investments into its capital markets and industrial sectors.
Foreign investors have flocked to India's stock market, purchasing over $15 billion worth of shares this year on a net basis, while domestic funds have contributed over $20 billion. This institutional support has been amplified by a surge in retail trading activity since the pandemic.
India's economic trajectory has shifted from being primarily consumption-driven to a more balanced approach that encompasses both consumption and investment. This transformation has been enthusiastically welcomed by the markets, as they recognize the immense potential that lies within the country, noted Ashish Gupta, chief investment officer at Axis Mutual Fund.
Amidst a slowing global economic landscape, India's robust growth stands out. The nation's gross domestic product (GDP) surged by 7.6% in the three months ending in September compared to the same period a year ago. This impressive growth is expected to bolster Prime Minister Narendra Modi's chances of retaining power in the upcoming elections next year.
While some experts caution that the elections could pose risks to the stock market's stability, others highlight the elevated valuations of Indian shares as a cause for concern. The S&P BSE Sensex Index is currently trading at 20 times forward earnings estimates, exceeding its five-year average and surpassing the 16 times valuation of a global stocks gauge. Additionally, volatility has increased alongside stock benchmarks, indicating that some investors are adopting more cautious hedging strategies given the extent of the rally.
Despite these concerns, optimism remains prevalent among market analysts. Goldman Sachs Group Inc. upgraded India's market outlook to overweight last month, citing it as "the best structural growth prospect in the region." Similarly, Nomura Holdings Inc. maintained its overweight recommendation on India in its latest Asia ex-Japan strategy report.
"From a structural standpoint, we would advocate buying during dips, assuming political and policy continuity," Nomura strategists led by Chetan Seth stated in a note on Tuesday.
India's stock market has undoubtedly embarked on a remarkable journey, achieving significant milestones and attracting substantial global attention. As the nation continues to navigate the complexities of the global economy, its stock market is expected to remain a focal point for investors worldwide.