Milestone powered by confidence in India growth story
The Sensex hitting 75,000 is another milestone that reflects the confidence in the India growth story. It also underlines the definitive shift towards financialisation of savings that has been seen in recent years. Investors are bullish as the economy is set to become the third-largest economy in the world. The direction is clear, it is only a question of when and not if. India’s growth story has been very consistent. Apart from a brief period during the pandemic, the economy has not had any massive setback or volatility in its growth trajectory. Investors are convinced that it is India's decade and the country is positioned favourably from a geo-political context. The financialisation of savings is evident as household savings are now being directed towards equities, instead of real estate and gold.
Post pandemic, the government’s initiatives to revive investments have resulted in the re-rating of select government-owned enterprises and banks. Markets have handsomely rewarded pockets that offer visibility in growth and comfort in valuations.
Domestic investors are playing a key role in driving the stock market to record highs, which is complemented by strong fundamentals and earnings growth of corporates. While foreign investors continue to participate in the India growth story, their ownership versus India’s weight in benchmark EM indices has come down. This is partly due to the sharp increase in India’s weight in the MSCI Emerging Market Index.
Despite the massive rally, we are still constructive on further gains. At the same time, we don’t rule out the emergence of froth in certain pockets, particularly in the small and midcaps space.
Our investment thesis favours large caps over midcaps and as a thematic, we prefer investment over consumption. In the near term, investors will also watch the election outcome, though expectations are that the status quo will remain. There will be other global factors at play, including but not limited to geopolitical tensions, global inflation and its consequent impact on rates and currencies and commodity prices.