Following the bull market in Japanese and South Korean stock markets, India's stock market is set to reach new highs. This surge is due to a bounce in Adani Group's shares and an influx of foreign capital, returning strength to the Indian stock market, which has achieved record highs in recent years.
On Thursday, India's BSE SENSEX Index, also known as the Sensitive Index or Sensex 30, rose by 0.2% at one point during the day. It marked the fourth consecutive trading day of gains, having rebounded more than 9% since a brief correction period in mid-March, setting a new historical high. The BSE SENSEX Index eventually closed down 0.46%.
India's blue-chip Nifty 50 Index closed down 0.42% today, with intraday gains reaching 0.68%. Both the Nifty and Sensex indices reached new historical highs, making them some of the best-performing benchmark stock indices in the Asia-Pacific region this quarter, second only to Japan's Nikkei 225 Index.
On Thursday, the Indian stock market's real estate sector, sensitive to interest rates, rose more than 1.5%, while the metals sector also saw significant gains. The consumer goods index, Nifty FMCG, rose more than 1%, making it one of the biggest gainers. Jefferies anticipates that the profit margins of consumer goods companies will continue to rise due to falling input costs.
Last month, the total market capitalization of India's stock market returned to $3.3 trillion, reclaiming its position as the world's fifth-largest stock market. In January of this year, India was briefly surpassed by France for this ranking.
Before India, the benchmark stock indices of Japan and South Korea had also entered the bull market territory. On May 30, South Korea's benchmark Kospi Index rose 0.4% at one point, up 20% from its low on September 30. On Monday of this week, the Nikkei 225 closed nearly 2% higher, reaching 32,000 points for the first time since July 1990, a cumulative increase of nearly 25% since the start of the year.
In fact, stock markets in the Asia-Pacific region have been generally rising recently. Not only have Japan, South Korea, and India shown strong uptrends, but the stock markets of countries like Vietnam and Indonesia have also performed well. The Vietnamese stock market was the only stock market in Southeast Asia that rose in May; the Philippine PSI Composite Index has also risen nearly 2% since June.
Why is India's stock market surging? Analysts believe that there are several main reasons for the impressive performance of India's stock market:
First, the rebound in shares of Adani Group. A recent investigation found no definitive evidence to support the allegations by Hindenburg Research that Adani had manipulated stock prices. This news sparked a rebound in Adani's shares, and the market value of its 10 listed companies increased by about $15 billion in the following week, reducing the loss in market value from $153 billion to $105 billion since the release of the Hindenburg report.
Second, a massive influx of foreign capital. Data from Bloomberg shows that since early April, overseas investors have increased their holdings of Indian stocks by about $5.7 billion in pursuit of steady growth in returns. The pace of this foreign capital influx has been accelerating in recent weeks, with over $1 billion in capital flowing in each week. As the global economy slows and concerns rise, India is being seen by many investors as a safe haven.
Third, the interest rate market is betting that the Reserve Bank of India (RBI) will end its tightening cycle soon and will cut interest rates multiple times in the coming year. Data shows that India's retail inflation rate slowed to an 18-month low of 4.70% in April, well below the RBI's maximum tolerance level. Economists expect that the next few readings are likely to be below 6%, which increases expectations that the RBI will pause its tightening cycle.
According to Reuters, Shrikant Chouhan, head of equity research at Kotak Securities, said, "Expectations that the Reserve Bank of India will pause rate hikes have triggered optimism among those sensitive to interest rates."
Chetan Ahya, Morgan Stanley's chief Asian economist, wrote in a report that the Indian economy is becoming increasingly strong. The upcoming recession in the U.S. may put pressure on the profits of export-oriented Asian economies. In contrast, the Indian stock market appears to be a more attractive choice at the moment.
A report by Bank of America Securities on Tuesday also said that India has "jumped" from the bottom of the preferred list of Asian fund management companies to a net increase position.
