13/04/2024
In the past 20 years, the Indian stock market has performed strongly.Since January 2000, India's Sensex30 index has doubled more than 12 times, and its increase far exceeds the standard Poole 500 index, the Tokyo Nikkei 225 index and the Shanghai-Shenzhen 300 Index.
What factors support the continued rise of the Indian stock market?Can the Indian stock market regain its upward trend in the future?What risks should investors pay attention to?
Regarding the reasons for the continued rise of the Indian stock market, from the perspective of economic fundamentals, India's real GDP growth rate has remained high in the past 20 years. From 2000 to the third quarter of 2023, India's real GDP growth rate averaged 6.63% year-on-year, which is one of the fastest growing countries in the world economy.
Is the current overall valuation of the Indian stock market reasonable?Can corporate earnings support the continued rise of the Indian stock market?Respondents generally believe that the valuation of the Indian stock market is supportive.
First, Indian corporate earnings growth is strong.Mike Shiao, chief investment director of Invesco Asia (excluding Japan), believes that strong demand in India's manufacturing and consumer discretionary industries is increasing pricing power and driving profit growth.Corporate earnings from all walks of life continue to show an upward trend, and the return on equity (ROE) reflects positive growth.It is expected that by fiscal year 2024, the ROE of Indian companies may hit a ten-year high of 15%, and rigorous and orderly expansion may be more likely to drive ROE to continue to rise.The earnings growth of Indian companies is strong, with an average earnings per share growth of 22% over the past five years.Profitability is currently experiencing a significant cyclical upward trend.The earnings per share growth of Indian companies is much higher than that of most advanced economies and emerging markets, and is expected to reach about 17% by 2024.Historical trends confirm that India's economic growth can be translated into substantial corporate profits.
Mike Shiao said: "It is worth noting that compared with the MSCI India Index, Indian small-cap stocks tend to have a higher price-to-earnings ratio.We expect large-cap stocks to have a greater upward trend in 2024, because they usually show a higher ROE.”
Secondly, the fundamentals of Indian companies are strong.Mike Shiao pointed out that in the past decade, Indian companies have been able to effectively manage their balance sheets and maintain low-leverage positions, thus benefiting from demand-driven growth.The debt/equity ratio of Indian companies is at an all-time low, about 0.5 times.
Third, there are positive macro factors.Mike Shiao believes that the structural changes in the Indian economy over the past decade have brought confidence to the market.India's growth cycle is expected to produce strong earnings in the next three to four years.The expected decline in interest rates will boost market confidence in India's future cash flow, and its strong relative growth will further benefit this positive outlook.
Fourth, it is included in the main bond index.Malcolm Dorson, head of emerging market strategy and senior portfolio manager of emerging market stocks at Global X ETFs, pointed out that the inclusion of Indian sovereign bonds in important international indexes will benefit the Indian stock market.Indian sovereign bonds will be included in JP Morgan's global bond index from June this year.Bloomberg Index Services Co., Ltd. also announced that it will include India's “fully open route” bonds in the Bloomberg Emerging Markets Local currency Bond Index from January 2025.
Fifth, is the increase in people's income.Malcolm Dorson said that India's per capita annual income has just exceeded the important threshold of US22,000.As more and more ordinary people in India become wealthy, it is expected that the overall consumption level will increase, bringing more profitable growth to listed companies.At the same time, India will also benefit from the diversification of the global supply chain and the demographic dividend.
Sixth, the policy is positive.Malcolm Dorson, he expects that Prime Minister Modi will be re-elected with a high probability, thus ensuring the continuity of a very market-friendly economic policy.Wang Yi said that he has to admit that India's benchmark interest rate is also at a relatively high level (6.5%). If inflation can fall, then the expected interest rate cut and loose liquidity are expected to continue to drive the market's upward trend.
