Kumar, an offer administrator at an engineering company in New Delhi, set up a free stock trading account through Zerodha, India’s largest online brokerage firm. He put some of his savings into the Indian Railways as well as a clothing retailer and a cinema chain.
“I invested in everything I was using daily,” he said. Since then, he has received “a huge return in a quick time” – more than doubling his money in a year.
Lots of others want in on the action.
India’s booming stock market is attracting both local novices and global investors to the stocks of financial, industrial and technology companies that dominate its listings. The MSCI India index is up nearly 30% this year – nearly double the return of the global index – while India’s benchmark 30-share S&P BSE Sensex is up about 25%. Building on factors including simple demographics, government and fiscal policy, and geopolitical changes, the two have seen a seemingly continuous string of record highs.
This week’s initial public offering for the parent company of digital payments platform Paytm is clear. The company achieved its goal of raising $2.5 billion – making it the largest offering in the country’s history and valuing the company at over $20 billion. The launch underscored the momentum in the financial and tech sectors in the country, with a predominantly young population adopting digital startups.
At the same time, Prime Minister Narendra Modi’s government is trying to make India more self-sufficient for home businesses that offer everyday goods and services, while trying to bring more citizens – and their money – into the formal economy. And this spring, the Indian central bank launched a bond-buying program that’s a smaller version of the kind that has lifted stocks around the world.
Combine those factors and it’s a recipe for a retail investor boom: New securities-holder accounts have hit an all-time high, according to the Securities and Exchange Board of India.
“There is a lack of demand among the upper middle class, who are rushing to the market,” said Jeevan Mukhopadhyay, Professor Emeritus, Corporate Economics at the SP Jain Institute of Management and Research.
Their confidence has been boosted by the huge stake in companies that went public this year by institutional investors abroad. Abu Dhabi’s Sovereign Wealth Fund, Texas Teachers Pension Fund and Cambridge University have invested a total of over $1 billion in Paytm.
One reason: Foreign investors have recently soured on China, a longtime destination for those seeking higher returns, as growth slows there and a powerful central government cracks down on big tech companies.
“India really stands out this year with a decline in China,” said Todd McClone, portfolio manager at William Blair’s Emerging Markets Growth Fund.
His fund sharply cut its allocation to China, moving that money to Indian stocks, including conglomerate Reliance Industries, paint maker Asian Paints and specialty chemical company SRF.
“With the rapid growth, a lot of good companies and all the demographics that are standing behind it, I think it has given people a lot of confidence to come back to that market,” he said.
It remains to be seen how long the rally lasts. Emerging markets like India can often be at the mercy of decisions made by investors on the other side of the world. Oil prices are rising, which poses a particular challenge to India, a major importer.
Economists also point to an uneven recovery from the pandemic that has pushed many Indians back into poverty. As the economy shrank 21% during India’s first lockdown, small and medium-sized businesses that employ most of India’s workforce continue to falter, and the government is spending billions of dollars to bolster banks’ growing number of loans. has been
But investors remain optimistic: Wall Street analysts expect Indian companies to increase their earnings by more than 22% over the next 12 months – calculated in dollars – at a faster rate of growth than benchmark indexes in China or the United States. Speed.
“Share prices tend to follow earnings, and Indian corporates have the strongest fundamental momentum,” said Brian Freiwald, emerging markets portfolio manager at Putnam Investments in Boston.
The reason for the rapid growth of the Indian market can be traced back to 2016 and the policy of demonetisation. To reduce money laundering, the policy banned the most widely circulated currency notes and wiped out the savings of families and small businesses overnight. But it also propelled companies like Paytm, a sector that benefited more in face-to-face transactions as the pandemic raged.
The market-friendly measure given by Indian policy makers is to add momentum. In February, the Modi government proposed a budget that called for more spending on health care and infrastructure. Then, two months later, the Reserve Bank of India launched a similar quantitative easing program that the Federal Reserve and other central banks had set up to support their domestic economies. Although the Fed launched its bond-buying program more than a year after it began, India enjoyed a similar stock-market reaction: Shares took off.
For global investors, it was a stark contrast to what was happening in China, which had already enjoyed a rapid recovery from its pandemic shutdown. Chinese policymakers began to withdraw some of their support for the economy earlier this year. Growth began to slow — it dropped to just 4.9% in the third quarter — putting pressure on debt-laden firms that rely on steadily faster growth to pay off their creditors. At the same time, the Chinese government, under the increasingly centralized power of President Xi Jinping, is beginning to rein in some of the country’s most prominent tech companies.
It has been a lucrative backdrop for investors, and Chinese markets have posted some of the worst returns in the world this year.
“India does well when there is a problem in China,” said Divya Mathur, emerging markets portfolio manager at Martin Curry, a money management firm in Edinburgh.
Experts said that as fast as the Indian markets have risen, they remain fragile.
Emerging markets like India can be seen as global investors pouring in money quickly, especially as central banks raise interest rates and attract investor capital. Pulled India out of this situation in 2013: Investors pulled their money out of India after the 2008 financial crisis, when the Federal Reserve pulled back from low interest rate policies. Its currency, the rupee, fell to a new low against the dollar and pushed the country to the brink of a financial crisis.
There are also fundamental demographic challenges ahead. The youth who have helped accelerate the adoption of new technologies in the country will put pressure on the government to sustain rapid economic expansion. According to the World Bank, more than a quarter of India’s population – more than 360 million people – is under the age of 15.
“As this young population grows, can India provide enough job opportunities?” asked Ajay Krishnan, portfolio manager specializing in emerging markets at Wasatch Global Investors in Salt Lake City.
The pandemic also remains a threat: nearly a quarter of India’s population is fully vaccinated, leaving it vulnerable to another surge in cases that could cause more economic damage and push more citizens into poverty. can.
Economics professor Mukhopadhyay said those dynamics are a sign that market returns are not indicative of broader prosperity.
“Indian stock market behaves like a pampered child,” he said. “It hardly has anything to do with the pace of the economy.”