Strong economy, flows power India’s Nifty to best fiscal year since 2021
India’s blue-chip Nifty 50 index surged nearly 29% this financial year, ending March 31, powered by a booming economy and strong fund inflows that helped mark the best year for domestic stocks since a post-COVID bounce in fiscal 2021.
Aided by the rally in domestic equities, the overall market capitalisation of all National Stock Exchange (NSE) listed stocks jumped $1.5 trillion, or about 49%, over the last twelve months, to a near record high of $4.56 trillion.
India’s growth has also outpaced its Asian peers, with the domestic economy speeding towards growth of 7.6% in fiscal 2024, the fastest among large economies. India’s stock benchmarks were among the best performing indexes globally in fiscal 2024, only outperformed by the Nasdaq.
The Nifty also recorded its biggest rise in fiscal 2024 since 2021 when record high foreign inflows powered a 71% rise from COVID-19 led lows. Previously, the biggest gain for the index was in fiscal 2010 when stocks rebounded from a drop post the global financial crisis.
“The performance of Indian markets in fiscal 2024 is a reflection of two things: India’s strong macroeconomic growth and global risk-on sentiment, aided by hopes that a Federal Reserve rate cut should begin in the next six months,” said Pankaj Murarka, chief investment officer at Renaissance Investment Managers.
Reliance leads rise in Indian shares; realty stocks extend rally
Hopes of policy continuity after the upcoming national elections, spanning April to June in India and later in the year in the U.S. along with favourable liquidity conditions have also supported domestic markets, Murarka added.
Domestic mutual fund investors have been net buyers in equity-oriented schemes for 36 months in a row. Over the last 11 months, investments through systematic investment plans (SIPs) scaled multiple record highs.
Foreign portfolio investors (FPI) also turned buyers in Indian equities after being sellers in the last two financial years, buying shares worth 2.04 trillion rupees ($24.46 billion) in fiscal 2024, as of March 27.
This is the second-highest FPI inflow into Indian equities after foreign investors lapped up Indian shares following the COVID-19 induced slide in global stocks in fiscal 2021.
All 13 major sectors advanced in fiscal 2024, with realty, state-owned banks, auto and energy leading the gains, adding between 70% and 135%.
Despite their recent underperformance on valuation concerns in March, small- and mid-caps outperformed the benchmarks, adding 70% and 60%, respectively, during the period.
Only three of the Nifty 50 stocks UPL, HDFC Bank and Hindustan Unilever - logged losses in fiscal 2024.
Indian shares are likely to open little changed on the final trading day of the financial year 2024, tracking Asian peers, while high volatility is expected ahead of monthly derivatives expiry.
The Gift Nifty was trading at 22,176 as of 8:04 a.m. IST on Thursday, indicating that the blue-chip NSE Nifty 50 will open near Wednesday’s close of 22,123.65.
India’s benchmark indexes Nifty and BSE Sensex advanced in the previous session, led by heavyweight Reliance Industries.
The Nifty 50 has gained 27.44% in fiscal 2024 so far, on course for the best fiscal year performance since FY2021 and second best in 14 years.
The rise has been aided by strong macroeconomic fundamentals, sustained inflows from domestic mutual fund investors and the return of foreign portfolio investors after a two-year lull.
“With monthly derivatives expiry and financial year-end, volatility will likely be elevated,” said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services. Since jumping to a 10-month high of 16.58 ahead of the interim budget on Feb. 1, the volatility index has eased to 12.70.
Asian markets were little changed, with the MSCI ex-Japan shedding 0.02%. Wall Street equities closed higher overnight, ahead of a key inflation reading later this week.
Reliance leads rise in Indian shares; realty stocks extend rally
Recent hotter-than-expected US inflation data triggered worries over a delay in interest rate cuts but the Fed’s commentary at the policy meeting earlier this month eased concerns, as the central bank stuck to projections of three rate cuts this year.
Markets now expect a US rate cut in June, but the inflation data on Friday could influence the timing.
Foreign portfolio investors bought Indian shares worth 21.70 billion rupees (~$260 million) on a net basis on Wednesday, while domestic institutional investors purchased a net 11.98 billion rupees worth of stocks.