India’s broad-based, classic boom
While most investors focus on booming US stocks, “there is an even more intense bull market under way in India”, says Ruchir Sharma in the Financial Times. Unlike America’s narrowly focused tech boom, India’s run has been a “broad-based classic”, with gains spread across sectors and company sizes. Where India does resemble the US is the key role played by domestic retail investors. Rising incomes are fostering an “equity culture” in the world’s most populous nation. The amount of money Indians hold in targeted investment plans has tripled this decade to nearly $110bn. While the US and UK equity markets suffer de-listings, in India the number of publicly listed firms has nearly quintupled in two decades.
By one measure, the number of nationwide stock-trading accounts nearly tripled between 2019 and 2023 to 140 million – still a small fraction of a population of 1.4 billion, says The Economist. Equities still represent only 4.7% of Indian household wealth, behind property (51%) and gold (16%). But the equity share has more than doubled in a decade, marking a “sea change” for “middle-class India’s culture of saving”, which until recently was centred on gold (see page 5). The retail boom helped India’s stockmarket surpass Hong Kong as the world’s fourth-largest earlier this year. As with all booms, there are signs of excesses. Market regulators fret about social-media “finfluencers” pumping up “unrealistic expectations” for returns, while eager retail investors pile into less-liquid small caps.
It’s not just Indian investors getting excited, says Bastien Bouchaud in Les Echos. Foreigners poured more than $30bn into Indian stocks last year as they sought an alternative to China. The “cherry on top” is that the country offers diversification benefits. Unlike many of China’s east Asian trading partners, India’s economy is little correlated with activity in China. Just four years ago Indian stocks accounted for less than 8% of the MSCI Emerging Markets index, compared with more than 36% for China. Now those shares are much closer at 18% and 25% respectively.
Time for a breather?
After years of strong gains, now might be a time for “prudence”. At 22.5 times 2024 forecast earnings, the MSCI India index is more expensive than the 20.3 level for the S&P 500. The benchmark BSE Sensex index is up 90% over the past five years, but just 1% since the start of the year. The rally is running into headwinds, say Abhishek Vishnoi and John Cheng on Bloomberg. A “slew of earnings” disappointments has underlined the risks of a market that’s priced for perfection.
A recent revival in Chinese shares is drawing investor attention back towards Asia’s largest economy. On a price-toearnings basis, India’s stocks are well over twice as dear as their Chinese counterparts, close to a record gap. The long-term Indian outlook remains bright because of fast economic growth and an expanding middle class. But fund managers think things have become a little overheated. Take some profits and seek opportunities in other Asian markets.