India is climbing up global stock market ranks. Will this sustain?

India overtook Hong Kong to become the world's fourth-largest stock market by market capitalisation on January 23

Published: Jan 24, 2024 11:07:20 AM IST

Updated: Jan 24, 2024 12:39:19 PM IST

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Fifty-four days after becoming the fifth country in the world with an equity market capitalisation (m-cap) of $4 trillion, India overtook Hong Kong to claim the fourth spot yesterday. India’s market cap stood at $4.33 trillion on Tuesday, as compared to $4.29 trillion for Hong Kong. The country has been climbing the ladder on the global stock market, as it also surpassed France and the UK in June and now positions itself after the US, China, and Japan.

The US is the world’s biggest stock market with an m-cap of $50.86 trillion, followed by China with an m-cap of $8.43 trillion and Japan at $6.35 trillion. The big tech giants are eyeing India both as a major consumption epicentre and as a way of shifting capacity away from China. With Apple opening its first official store in India and its supplier Foxconn expanding manufacturing, India has positioned itself as China’s alternative, especially after the growing geopolitical tensions. This has in a way triggered an economic slowdown in China, inversely causing the Hong Kong markets to decline. Reportedly, in the last twelve months, India’s Nifty50 index has gained 19 percent while the Hong Kong benchmark Hang Seng index lost 31 percent.

The slowdown in China has led to a selloff in benchmark indices in China as well as Hong Kong. The Hang Seng is at a level where it was in 2009, while Chinese stocks are at a five-year low, explains Aditya Vora, lead midcap analyst at Share India Securities. While the Chinese government is in talks to launch a stimulus program to shore up its stock markets, India is the preferred destination for foreign institutional investors (FIIs). “It is a tradeoff between growth and valuations. India offers strong growth prospects at moderately high valuations, while China has limited growth prospects but at cheap valuations.”

Optimism about the country’s economic outlook is growing with increased liquidity, domestic participation, and a falling US Treasury yield. India has been an outperforming market in the Asia-Pacific region. The growing retail investor base, constant inflows from FII, and strong investor sentiments are also driving Indian equities towards an upward trajectory. The number of registered investors in the stock market increased 22.4 percent to 8.49 crore as of December 25, from 6.94 crore on December 31, 2022. The investor base increased from 7 crores to 8 crores in just eight months.

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“The larger India story is intact, and very soon it is set to overtake other markets as well,” says Rishabh Parakh, founder of NRP Capitals. In the next two or three years, the Indian market will occupy the third spot. It is quite evident with the number of SIPs, which is close to $2 billion, and similar amounts coming in from pensions and other funds, and the overall China plus one story remains in our favor, he adds.

Indian retail investors also remain bullish. For instance, Deep Shah, 24, has been investing in stock for twelve years. He says, “With India being a ‘young’ country, stock markets becoming more and more accessible to almost every individual, and education about the stock market reaching the roots of the country, we're looking at something equivalent to those four years of Bovespa [the Brazilian index grew fourfold] between 2016 and 2020, or, who knows, even more?”

Meanwhile, foreign portfolio investors offloaded equities worth Rs3,115 crore on Tuesday, and domestic institutional investors (DIIs) invested Rs214 crore. The Sensex fell more than 1000 points, and the Nifty slipped 333 points to 21,238.

On the morning of January 24, Indian indices opened on a negative note, with the Nifty below 21,200. The Sensex was down 181.47 points, or 0.26 percent, at 70,189.08, and the Nifty was down 36.70 points, or 0.17 percent, at 21,202.10. About 1351 shares advanced, 934 shares declined, and 87 shares remained unchanged, as per Moneycontrol.