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India’s stock market hit a fresh record high this week, propelling its value above $4 trillion for the first time and leaving it in a close battle with Hong Kong for fourth spot in the global ranking.
The S&P BSE Sensex
IN:1,
India’s benchmark equity index, is up more than 7% in just the past month and has gained 14.3% for the year-to-date as investors seek exposure to the world’s most populous nation and fifth biggest economy. The MSCI China index, in dollar terms, has dropped 13.6%, while the MSCI World Index is up 16.1% over the same period, boosted by an 18.5% gain for the S&P 500 in the U.S.
The iShares MSCI India ETF
INDA
has climbed 13.4% this year.
“It’s been a fantastic decade for Indian blue chips, with the Sensex hitting a new all-time high in 9 of the past 10 years, for a cumulative total of 243 times,” noted Benedek Vörös, director, index investment strategy at S&P Dow Jones Indices.
The long rally has left the India market behind the U.S., (which is some ten times bigger), China and Japan but with a similar valuation to Hong Kong, which has faltered of late amid concerns about the mainland China property sector.
Source: S&P Dow Jones Indices
The India bourse has been bolstered by a growing investing class among its 1.4 billion citizens and an influx of foreign buyers who have purchased a net $15 billion of stocks in 2023, according to Bloomberg data.
Investors have warmed to the generally more open-market, business-friendly policies of Prime Minister Narendra Modi — who is expected to stay in power after an election due in 2024 — and are excited by the Indian economy, which expanded 7.6% in the three months to September, from the year before.
“Data over the past twenty years show that India has one of the closest relationships between economic growth and market returns,” said Alex Wolf, Asia head of investment strategy at J.P. Morgan Private Bank.
The Indian economy — which may account for about 16% of global growth by next year — is expected to continue expanding at a fast pace as more people are employed and the relatively cheap wages and large proportion of English speakers attract foreign direct investment.
Source: Legal & General
“With a labor force participation rate of only 32.5%, we expect millions of people to join the formal labor force as the economy expands, solidifying the Indian consumer and contributing further to economic growth,” says Gargi Pal Chaudhuri, head of iShares investment strategy at BlackRock.
India is also benefitting from the move by many manufacturing companies to reduce exposure to China, amid perceived geopolitical risk. Apple is looking to switch some battery manufacturing to India, the Financial Times reported this week, while Foxconn, Apple’s biggest supplier, plans to invest more than $1.5 billion for a new production facility in India, according to a recent company announcement.
“India may be a beneficiary of trade rewiring to ‘friendlier’ countries where costs are lower than developed markets,” said BlackRock’s Chaudhuri. “India is focused on expanding and taking on a larger role in global supply chains.”
However, investors will note that the surge in India stocks has left them richly valued relative to the past, with the 12 month forward price/earnings ratio of more than 20 times.
Source: J.P. Morgan Private Bank
