SINGAPORE - A combination of strong macroeconomics, increasing retail participation, robust corporate performance, accelerating foreign direct investments and a general feel-good factor among investors has fuelled a bull run on the Indian equity market in 2023.
As of this week, the Indian stock market has overtaken Hong Kong to become the seventh-largest in the world.
After a pullback in October, Mumbai’s marquee Nifty 50 index has chalked up a strong recovery in November – in tandem with other global markets. The index represents the weighted average of 50 of the largest Indian companies listed on the National Stock Exchange.
The Nifty hit a fresh high at almost 21,000 on Dec 14, having gained some 15 per cent in 2023.
Meanwhile, the S&P BSE Sensex also hit a new record high of 68,587 points this week. The index is a free-float, market-weighted stock market index of 30 well-established and financially sound companies listed on the Bombay Stock Exchange. Even small caps seem to be in play. The BSE MidCap and BSE SmallCap indexes are reaching for fresh highs.
So what is driving this bullishness?
Analysts say Hindu nationalist Bharatiya Janata Party’s recent electoral victories has cheered the market, as it also cements Prime Minister Narendra Modi’s position. Mr Modi is seen as being business-friendly.
Meanwhile, there is widespread expectation that a rate-hike pause announced by the United States Federal Reserve, followed by a potential cut of 75 basis points in 2024, could give more uplift to Indian stocks if the Reserve Bank of India (RBI) follows suit.
The RBI has been raising its key lending rate since June 2022, and the latest lending rates, following a 25 basis-point increase in June, is 6.5 per cent.
Meanwhile, corporate earnings remain robust.
HSBC forecasts earnings growth of almost 18 per cent for Indian corporations in 2024 – among the fastest rates in Asia.
In a report issued recently, Mr Hitesh Suvarna of Indian investment giant JM Financial, noted India’s gross domestic product (GDP) grew 7.6 per cent during the July-September quarter, beating market expectations by a wide margin.
Indeed, the Indian economy is set to be the fastest-growing economy in the world, with full-year 2023 estimates ranging from 6.7 per cent to 7 per cent.
This is notably higher than that of most developed and developing countries, including most other economies within the Brics group. Brics denotes the countries of Brazil, Russia, India, China and South Africa, whose potential could see them emerge as global economic heavyweights in decades to come.
Mr Suvarna noted that while erratic weather conditions hindered the agricultural sector, India’s manufacturing and services sectors remained robust.
“Increased imports are not translating into private consumption; however, it may be catering to the domestic capex activity. Strength in GDP print indicates that the impact of rate hikes is yet to fully reflect in the economy. We expect RBI to maintain its hawkish tone, but rate action is unwarranted at this stage.”
Given the macroeconomics, liquidity and retail participation rate, most bets are on Indian stocks continuing to reach for new highs in the coming months.
