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India’s stock market, ranking as the world’s fifth-largest, is on the brink of achieving a record valuation of $4 trillion, fueled by a surge in investments from retail traders and a resurgence in foreign inflows. Data compiled by Bloomberg reveals that the market capitalization of securities listed on Indian exchanges has nearly tripled since the pandemic low in March 2020, reaching close to the $4 trillion milestone as of Monday.
The benchmark NSE Nifty 50 Index in India experienced a 2.1% jump on Monday, leading gains in Asia. This surge followed the victory of Prime Minister Narendra Modi’s ruling party in three crucial state elections, reducing political risk for investors and reinforcing Modi’s position ahead of nationwide polls next year. The positive outcome increases expectations of policy continuity, boosting investor confidence.
India’s stock market success comes at a time when the nation positions itself as an alternative to China for global investors and companies. Inflows from overseas funds have amounted to $15 billion this year, complemented by the retail investing boom that gained momentum during the pandemic. The Nifty gauge, up 14% in 2023, is poised for an unprecedented eighth consecutive year of gains.
India’s resilient economy, marked by a 7.6% GDP growth in the three months to September compared to the previous year, stands out amid global economic slowdown. The nation’s appeal is further enhanced by China’s subdued post-pandemic recovery and geopolitical tensions with the West.
MSCI Inc.’s gauge of Indian shares is on track to outperform a global emerging-markets measure by over 10 percentage points for the third consecutive year. Notably, the outperformance against Chinese peers is even more significant, with the Indian gauge expected to surpass the MSCI China Index by more than 20 percentage points for the third year.
Tanvi Kanchan, Head of UAE Business at India’s Anand Rathi Shares and Stock Brokers Ltd., noted, “The Indian market for the last 10 years has seen unparalleled growth, be it in the corporate sector or the broader indices.” She highlighted the outperformance of small and mid-cap companies contributing to the broader economy’s capital expenditure recovery in 2023.
India’s young population and Modi’s initiatives to attract a larger share of global supply chains have enticed companies like Apple Inc., while global pension and sovereign wealth managers increasingly turn to India over China.
However, concerns about high valuations have been raised, with some investors fearing the market is overvalued and becoming crowded, increasing the likelihood of a pullback. Additionally, the growing participation of individual investors, relying on advice from unauthorized financial advisers and social media influencers, poses a concern for market regulators.
Despite these challenges, Modi’s recent electoral victories are anticipated to boost sentiment and further attract foreign investors, contributing to the continued capital inflows into India.
