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India’s Stock Market Surge Highlights Long-Term Opportunities
Priyasha Mohanty
Equity Product Specialist
A new all-time high for India’s stock market is the latest sign that global investors should not overlook the significant long-term investment opportunity the country offers.
This news follows record-breaking rallies throughout December 2023 by the benchmark indexes: the blue-chip NSE Nifty 50 and the S&P BSE Sensex. India’s stock market capitalization had surpassed US$4 trillion earlier that month, but at the close of trading on 22 January 2024, the combined value of shares listed on Indian exchanges topped this, reaching US$4.33 trillion.1
Fuelled by relentless positive sentiment, the increase propelled India to become the fourth-largest equity market globally for the first time, just ahead of Hong Kong’s US$4.29 trillion.1
Solid foundations in place
The dynamics of the Indian market lend themselves to strong momentum in domestic equities.
Investor demand has been a key driver, including a rapidly growing domestic retail investor base. These investors typically use Systematic Investment Plans, which allocate a fixed amount to a mutual fund scheme at fixed intervals, which means investors are participating in the capital markets regularly (rather than taking a one-off, lump-sum approach). In addition, India has seen sustained inflows from foreign institutional investors.
India Institutional Equity Flows Have Risen Markedly (INR billion)
Source: CDSL, SEBI, Bloomberg, PineBridge Investments, 31 December 2023. For illustrative purposes only. We are not soliciting or recommending any action based on this material.
The country has been a standout economically, too. Robust corporate earnings, local credit growth, and positive high-frequency indicators, along with sound monetary policy and broad-based recovery in sectors from financials to autos to fast-moving consumer goods, have provided macro stability and a compelling investment landscape.
As a result, the International Monetary Fund (IMF) recently adjusted its India gross domestic product (GDP) projection upward by 0.2%, to 6.3% for both this year and next.2
India’s financial sector has been an important pillar for stability and growth prospects. The asset quality of domestic banks, for example, has improved, with nonperforming loans falling and credit to the private sector growing – both of which are contributing to robust balance sheets.
A Healthy Banking Sector Provides a Solid Foundation
Source: Top left & right, bottom left charts – Reserve Bank of India, PineBridge Investments, 30 September 2023. Bottom right chart – Reserve Bank of India, Bloomberg, PineBridge Investments, January 2024. For illustrative purposes. We are not soliciting or recommending any action based on this material. Any views represent the opinion of the investment manager and are subject to change.
At the same time, core industries – including steel, cement, electricity, gasoline, and diesel – are showing robust growth. Further with strong foreign portfolio flows, the businesses can raise equity at high valuations, in turn creating a more reliable capital-raising environment.
Energy – and especially renewable sources – is another area of progress. While the country’s per capita energy consumption is only a third of the world’s and a fourth of that in China, India’s large industrial sector and growing consumer market will require a lot to fuel them.
Indeed, the latter is expected to be a key driver of growth both at home and overseas over the coming years. Barclays, for example, projects aggregate discretionary consumption in India to triple to US$2 trillion by 2030.3
Indian equity: an attractive alternative
India has been a significant global player in IT services outsourcing, adding to the country’s long-term investment appeal as a destination to diversify supply chain operations.
Beyond its consumer pulling power, the country offers a viable alternative for outsourcing compared with other emerging nations. In particular, as a scalable manufacturing location with relatively stable political leadership, India has been luring fresh capital from the US and European companies pursuing near-shoring and “friend-shoring” strategies.4
For global investors, these trends reinforce India’s potential for greater scope for growth. Additionally, the MSCI Emerging Markets Index underrepresents India, and there are still pockets of value within large caps, such as in financials, healthcare, and technology. Meanwhile, the surge in domestic retail activity bodes well for small and mid-cap stocks, enabling many of these businesses to raise low-cost equity capital.
India is a long-term story, and within such a dynamic economy, we believe capturing the most compelling opportunities requires robust fundamental, bottom-up research that looks beyond index weights. In this way, investors can find the most attractive companies – those with solid business models, strong management, and fair valuations, and that have the potential to deliver sustainable returns for investors over different market cycles – while remaining vigilant against the potential risks.
With a thoughtful approach, global investors may tap considerable long-term investment opportunities offered by Indian equity.
Footnotes
1 Source: Bloomberg, 23 January 2024. https://news.bloomberglaw.com/capital-markets/india-tops-hong-kong-as-worlds-fourth-largest-stock-market-3
2 Source: IMF, October 2023. https://www.imf.org/en/News/Articles/2023/10/10/tr101023-transcript-of-october-2023-world-economic-outlook-press-briefing
3 Source: The Economic Times, 24 January 2024. https://economictimes.indiatimes.com/news/economy/indicators/indian-consumers-to-be-primary-divers-for-domestic-and-global-economy-barclays/articleshow/107109845.cms?from=mdr
4 “Near-shoring" is a business strategy in which a company outsources its business processes or services to a location nearby. “Friend-shoring” refers to the act of manufacturing and sourcing from countries that are geopolitical allies which makes it a synonym for trade bloc.
Disclosure
Investing involves risk, including possible loss of principal. The information presented herein is for illustrative purposes only and should not be considered reflective of any particular security, strategy, or investment product. It represents a general assessment of the markets at a specific time and is not a guarantee of future performance results or market movement. This material does not constitute investment, financial, legal, tax, or other advice; investment research or a product of any research department; an offer to sell, or the solicitation of an offer to purchase any security or interest in a fund; or a recommendation for any investment product or strategy. PineBridge Investments is not soliciting or recommending any action based on information in this document. Any opinions, projections, or forward-looking statements expressed herein are solely those of the author, may differ from the views or opinions expressed by other areas of PineBridge Investments, and are only for general informational purposes as of the date indicated. Views may be based on third-party data that has not been independently verified. PineBridge Investments does not approve of or endorse any republication of this material. You are solely responsible for deciding whether any investment product or strategy is appropriate for you based upon your investment goals, financial situation and tolerance for risk.
