India is now the favourite among its Asia-Pacific peers after its stock markets saw record-breaking rises this year.

The Nifty 50 index hit yet another top on Tuesday, continuing its trend of setting new records. Now up over 15% so far this year, the index is poised for an eighth year of gains.

The rise in stock markets has been attributed to a number of factors, including more liquidity, increasing domestic involvement, and optimism about India’s future potential. Actually, the value of the Indian stock market has surpassed that of Hong Kong, making it the sixth largest globally.

Data from the World Federation of Exchanges shows that as of the end of November, the total market capitalization of the National Stock Exchange of India was $3.989 trillion, while Hong Kong’s was $3.984 trillion.

The WFE’s statistics also revealed that the NSE in India experienced a higher number of new stock listings than the HKEX. As of November, Hong Kong had seven new listings on its stock market, compared to 22 on India’s.

The following five factors have contributed to India’s stock markets hitting all-time highs this year:

With its economy developing at one of South Asia’s quickest rates, India is expected to have even more growth in the coming year.

The most populous nation in the world has continued to develop quickly this year; the third-quarter GDP report released earlier this week showed a growth rate of 7.6%, significantly more than anticipated.

The likelihood that India will lead Asia’s growth has also increased. India’s GDP is expected to reach 6.4% in the fiscal year that ends in March 2024, according to S&P Global, up from its previous estimate of 6%. 

Strong profitability and solid fundamentals have also been demonstrated by the Indian stock market, which is predicted to rise through 2024.

India’s earnings growth in 2024 is predicted by HSBC to be 17.8%, which would be among the fastest in Asia. HSBC states that the industries with the best prospects for 2024 are those that have already performed well this year, such as banks, healthcare, and energy.

While HSBC stated that certain industries were unfavourable for 2024, others, such fast-moving consumer goods, utilities, and chemicals, were comparatively well-positioned. These industries included automakers, retailing, real estate, and telecoms.

HSBC study indicates that domestic involvement in Indian stock markets has increased this year, particularly in high-growth areas.

“While foreign investors tend to be active in large caps, it is local investors that dominate the small and mid-cap space, which partly explains the outperformance – fund flows into midcap-small schemes of domestic MFs (i.e. mutual funds with a mandate to invest in small/midcaps) have been disproportionately high,” HSBC noted.

It anticipates that this tendency will carry over into the upcoming year.

Last Friday, the Reserve Bank of India maintained its basic lending rate at 6.5% and stated that it anticipates 7% growth in the nation this year. The central bank did issue a warning, stating that persistent underlying price pressures would keep inflation above goal even as it continues to decline.

But it doesn’t mean market participants won’t be anticipating rate reductions in the upcoming year.

“We expect the policy pause to be extended for now and expect 100bp (basis points) of cumulative rate cuts starting from August 2024,” analysts at Nomura wrote in a client note.

In stock markets, lower loan rates frequently increase liquidity and encourage a more risk-taking attitude.

The markets are nevertheless upbeat about more policy consistency as India gets ready for a significant election year in 2024.

According to analysts, the incumbent nationalist Bharatiya Janata Party may win again because of recent surveys and state elections that indicate the right-wing BJP may hold onto power.

“The ruling Bharatiya Janata Party (BJP) outdid its national and regional rivals at the recently held state elections. This strong run fed expectations of political stability at the upcoming general elections in April/May24, addressing earlier concerns that a weak showing at the state polls might have stoked a fiscally populist agenda in the coming months,” DBS senior economist Radhika Rao said in a client note.

(Adapted from CNBC.com)

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