Five reasons why India stocks are rallying and could keep going

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Beautiful and colorful aerial view of Mumbai skyline during twilight seen from Currey Road, on February 16, 2022 in Mumbai, India.

Pratik Chorge | Hindustan Times | Getty Images

India’s stock markets have staged record-breaking rallies this year, making the country a favorite among its Asia-Pacific counterparts.

The Nifty 50 index has repeatedly notched fresh all-time highs, reaching yet another peak on Tuesday. The index is set for an eighth year of gains, up more than 15% year-to-date.

Optimism about India’s growth prospects, increased liquidity and greater domestic participation have all contributed to the surge in stock markets. In fact, India’s stock market value has overtaken Hong Kong’s to become the seventh largest in the world.

As of the end of November, the total market capitalization of the National Stock Exchange of India was $3.989 trillion versus Hong Kong’s $3.984 trillion, according to data from the World Federation of Exchanges.

Numbers from the WFE also showed that India’s NSE saw more new stock listings than the HKEX. India’s stock market had 22 new listings vs. Hong Kong’s seven, as of November.

Here are the five reasons why India’s stock markets have reached new highs this year:

Growth prospects

We like both private and public sector banks in India, says financial services firm

Strong earnings

There is value in large-cap companies in India, says Kotak Institutional Equities

Domestic participation

Food inflation in India will still be an upside risk in first half of 2024, says Goldman Sachs

Rate cuts are coming

The Reserve Bank of India held its main lending rate steady at 6.5% last Friday and said its expects the country to grow at a pace of 7% this year. The central bank did warn that inflation, even as it continues to cool, still remains above its target as underlying price pressures were stubborn.

That, however, does not mean market players aren’t expecting rate cuts next 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.

Lower lending rates often boost liquidity and boost more risk-taking sentiment in stock markets.

Policy continuity

As India gears up for a big election year in 2024, markets remain optimistic on further policy continuity.

Analysts predict it could be another victory for the ruling nationalist Bharatiya Janata Party, with recent polls and recent state elections showing the right-wing BJP could retain 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.



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