India's stock market has managed to overtake Hong Kong's due to increased optimism about the country's economic prospects. Now the Indian stock market is the seventh largest in the world, with the Nifty 50 increasing by 20% since the beginning of this year, while the Hong Kong Hang Seng index retreated by 15%.
Optimism about the prospects for India's economic development, increased liquidity, as well as active participation from local investors contributed to the growth of the country's stock market. According to the World Federation of Stock Exchanges, at the end of November 2023, the total market capitalization of the National Stock Exchange of India amounted to $3.989 trillion against $3.984 trillion for Hong Kong. Moreover, WFE data shows that there have been more stock listings on the NYSE Indian stock exchange this year than on HKEX.
Bloomberg data, in turn, indicates that by the end of 2023, 184 initial public offerings of shares took place in India, which is a record number for the country in its history. In October alone, 30 companies entered the Indian stock market, which exceeds the number of IPOs in the United States, China and Hong Kong during this period. Investor demand in the world's most populous country has increased as the slowdown in economic growth in China has reduced the attractiveness of the Chinese stock market.
Moreover, investors were disappointed by the decision of Moody's, which downgraded its outlook on China's credit rating from "stable" to "negative", concerned about the country's debt level. In addition, the experts of the rating agency see certain risks in the fact that the government of China increases the volume of borrowings and uses them as a key measure to support the country's economy. Against the background of this decision, Chinese blue chip stocks reached a 5-year low, and the RMB weakened.
Nifty 50, in turn, has been steadily rising since the end of October this year and closed on Friday, December 15, at a record level of 21,456.65 points. Indian stocks were supported by statements from the Fed, which hinted at the end of the cycle of raising its key rate. Additional support for Indian actions this month was provided by news from the country's polling stations. As reported by Reuters, the vote count showed that the key victories in three of the four state Assembly elections were won by the ruling Bharatiya Janata Party of India (BJP).
As noted above, investors are also given confidence by the optimistic forecasts of a number of economists regarding the growth rate of the Indian economy. In particular, S&P Global Ratings predicts that by 2030, India's economy will more than double to $7.3 trillion, compared with $3.5 trillion in 2022, becoming the third largest economy in the world. According to the agency's estimates, the country's GDP growth rate in the 2026-2027 financial year may reach 7%, and in the fiscal year ending in March 2024, an increase of 6.4% is expected.
At the same time, Citigroup analysts revised their forecasts for India's GDP growth for the current fiscal year upward by 50 basis points to 6.7%, citing an increase in investment activity in the country.
Prospects for economic growth
Today, India is one of the fastest growing economies in South Asia, and the expectations of many experts for the next year are only improving. The country's economy has grown steadily at a high pace this year: the most recent GDP data in the third quarter showed a much higher than expected growth rate of 7.6%.
In general, the average forecasts of a number of experts indicate that the Indian economy will grow by 6.7-7% in the 12 months ending in March 2024, which paints a pretty good picture.
Strong reporting
Indian companies have demonstrated good fundamentals this year and recorded steady profits, which are expected to grow in 2024.
In particular, according to HSBC analysts, the increase in profits of Indian companies in 2024 will be about 17.8%, which is one of the highest growth rates among Asian countries. According to experts of the British bank, sectors such as banks, healthcare and energy, which have already succeeded this year, have the best prospects in 2024. At the same time, sectors such as the automotive industry, retail, real estate and telecommunications also showed good results.
Active participation of local investors
A study by HSBC, cited by Reuters, showed that this year there has been an increase in the activity of local investors in the Indian stock market, especially among citizens of rapidly developing regions.
"While foreign investors, as a rule, actively invest in shares of large-cap companies, it was local investors who invested in securities of small and medium-cap companies," the bank's experts noted. According to HSBC analysts, this trend should continue next year.
Upcoming rate cuts
According to the results of the last meeting, the Reserve Bank of India kept the loan rate at 6.5% and stated that GDP growth is expected to reach 7%. At the same time, the Central Bank warned that inflation, despite the fact that its level is decreasing, still remains above the target.
Nevertheless, bidders hope for a reduction in rates in the near future, and Nomura Holdings experts believe that by August 2024 the cumulative rate reduction will amount to 100 bps.
It is known that lower loan rates often increase liquidity and increase investors' risk appetite in stock markets.
Succession of power
Most analysts expect that the ruling nationalist Bharatiya Janata Party can retain its power and win the elections to be held in the country in the spring of 2024. An additional evidence of this is the results of the elections to the legislative assemblies of four states.
Thus, the ruling party managed to outperform its national and regional rivals in three out of four states. According to the Central Election Commission, the Bharatiya Janata Party won 161 out of 230 seats in the Parliament of Madhya Pradesh, 115 out of 199 seats in the Legislative Assembly of Rajasthan and 54 out of 90 seats in the Parliament of Chhattisgarh.
