Indian stock market on Wednesday achieved a milestone, touching $4 trillion in market capitalisation (m-cap) for the first time ever. This coincided with the NSE barometer Nifty50 reclaiming the psychological mark of 20,000 for the first time since September.
The optimism on Dalal Street has its roots in the way India is uniquely placed among global economies. At a time when the global economy is facing the twin problem of high inflation and slowing growth, with even the world’s growth engine China not showing a sign of recovery, India has taken the centerstage. Many global agencies have upped FY24 GDP forecast for India and several global brokerages retained India ‘overweight’ in their model portfolios despite strong gains.
Just two days ago, foreign brokerage CLSA talked about ‘Bharat story’, saying India is moving up in the world. It projected India’s GDP growth to propel it to the top three of the globe’s largest economies, from a mere $3.4 trillion today to larger than Japan’s by 2027, hitting $45 trillion mark by 2052.
“A temporary slowdown until September 2024 is possible, but we view a cyclical recovery as likely in 2025. Its demographic advantage, financial deepening and a stable currency with ample forex reserves fuel our longer-term outlook. We prefer large-cap liquid stocks to maximise capital protection and mid-caps for growth opportunities,” CLSA said.
The foreign brokerage felt India is poised for growth with rising incomes, institutional accessibility and the impact of innovation and digitisation.
India vs China debate
Earlier this month, Morgan Stanley in its 2024 Asia strategy note said China is likely to continue struggling with debt and deflation challenges. Morgan Stanley analyst suggested a below-consensus economic growth of 4.2 per cent in real GDP terms and 4.8 per cent in nominal terms for China in 2024.
“In stark contrast, our team forecasts Indian nominal GDP growth at 11.6 per cent in 2024 and 11.2 per cent in 2025, with a young demographic and geopolitical alignment driving inflows and reducing the cost of equity,” it said.
No surprise, China's weight in the MSCI AC Asia Pacific index has fallen by 7 percentage points since January 2021, from 26 per cent to 19 per cent. India has seen the largest gain over this period, rising 4 percentage points to 10 per cent. Strong economy does, reflect on investor vote on stocks. At the time of writing this copy, foreign institutional inflows to India were close to Rs 1 lakh crore year-to-date. India has in fact added the the latest $1 trillion market cap in mere two-and-a-half years from the $3 trillion level.
Where is Nifty headed after 20K level?
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said since the global market backdrop continues to be favourable, the rally in India is likely to continue. The drop in US 10-year bond yield to 4.3 per cent and the dollar index dropping below 103 are positive for equity markets. FIIs have turned buyers responding to the changed reality, he noted.
Investors should take cues from the wisdom of the investment legend Charlie Munger who passed away yesterday. Munger advised investors: “don’t be gamblers, be patient investors.
”There is a lot of gambling happening in the market now in low grade stocks. These should be avoided. Investors should buy quality stocks which are fairly priced, and wait patiently. There is value in largecap banking, IT and autos for patient investors. A big move in the market is likely after the state election results are known. Perhaps the exit polls tomorrow evening may provide some clues," Vijayakumar said.
Jefferies in a November 23 note also cited the fall in US 10-year yields and that despite the events in the Middle East, oil prices have behaved well. “The opinion polls and on-the-ground feedback suggest that the BJP's performance in the upcoming state elections may be better than initial expectations. If the latter is true, the market might see a bounce after the results announcement on the December 3. Relative valuations ex-China appears reasonable,” it said.
Meanwhile, in the months of December, the stock market has closed in green on seven occasions out of last 10 years, with an average return of 3.7 per cent.
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