Indian equities have become a safe haven this year amid the global downturn and are poised to increase their lead and end 2022 on a high.
The return of traders and investors supported the market, and the S&P BSE Sensex rose to an all-time high on Friday. Rising retail investment, strong domestic demand, and political stability are also factors that have helped India separate itself from other emerging markets.
Sensex is up 6.1% this year and is on track for its seventh straight year of growth. Its gains are the largest among benchmarks in countries with a stock market value of at least $1 trillion and are comparable to a 23% loss in the MSCI Emerging Markets Index. The MSCI All-Country World Index is down 18% in 2022.
The Indian market saw the exit of foreign traders and investors at the beginning of the year amid interest rate hikes by the Federal Reserve, but stocks have been gaining momentum since this year’s lows in June as buyers slowly returned. Strong earnings in the last quarter also bolstered investor confidence in the economic recovery.
India recently overtook the UK to become the world’s fifth-largest economy. Gross domestic product is projected to increase by 7.0% in fiscal 2023.
India has also benefited from the collapse of China this year, which has spooked global funds. During the rush selling of Chinese stocks in October, Indian stocks have seen an influx. In this quarter, foreigners bought $2.5 billion worth of Indian shares and in the previous three months, they bought $6 billion.
Some investors view India’s stocks as a diversifier for the risks of China’s reopening.
At the same time, the Chinese market shows a recovery in November, as there are signs that the authorities are moving away from the strict Covid Zero policy.
Given that Covid control and the property crisis have been the most painful issues for investors, the authorities’ moves could provoke funds to invest in Chinese assets, which will affect demand for Indian assets.
Also, many analysts say India’s market performance will be helped by fundamental factors such as the favorable demographics that underpin its domestically oriented economy.
The government measures are also encouraging foreign companies, including iPhone makers, to set up factories in India, increase local production and attract foreign investment.
According to the data, India’s GDP is expected to more than double to over $7.5 trillion by 2031, while its stock market capitalization will rise by more than 11% a year to $10 trillion.
In October, local investors placed about $1.1 billion in equity funds, marking the 20th consecutive month of net inflows.
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