India has achieved a new milestone in its stock market, surpassing Hong Kong in terms of the total value of shares listed on its exchanges. According to Bloomberg data, India’s stock market capitalization reached $4.33 trillion as of Monday, January 22, 2024, while Hong Kong’s stood at $4.29 trillion. This makes India the fourth-largest equity market in the world, after the US, China and Japan.
What are the factors behind India’s stock market boom?
India’s stock market has been on a rising trend, driven by several factors, such as:
- A growing base of retail investors, who have been flocking to the market amid low interest rates and easy access to online platforms. According to data from the Securities and Exchange Board of India (SEBI), the number of demat accounts in India increased by 42% in 2023, reaching 82.5 million by December.
- Robust corporate earnings, especially from the IT, banking and consumer sectors, which have benefited from the economic recovery and digital transformation. According to Refinitiv data, India’s corporate earnings are expected to grow by 25% in 2024, compared to a global average of 15%.
- A stable political environment and a consumption-driven economy, which have made India an attractive destination for global investors and companies. India has positioned itself as an alternative to China, which has faced regulatory crackdowns, geopolitical tensions and a property-sector crisis. According to data from Morningstar India, foreign portfolio investors (FPIs) pumped in $37 billion into Indian equities in 2023, the highest annual inflow ever.
- Policy reforms and initiatives, such as the production-linked incentive (PLI) scheme, the asset monetization program, the privatization of state-owned enterprises and the introduction of a bad bank to resolve stressed assets. These measures have improved the business climate and boosted investor confidence in India.
How does India compare with Hong Kong?
India’s stock market performance contrasts sharply with that of Hong Kong, which has witnessed a historic slump in its equities. Hong Kong’s market capitalization has fallen by more than 40% since its peak in February 2021, when it was valued at $7.4 trillion. Some of the reasons for Hong Kong’s decline are:
- The impact of Covid-19 and the strict measures taken by China to contain the virus, which have hampered economic activity and mobility in Hong Kong.
- The regulatory crackdowns by China on various sectors, such as technology, education, gaming and entertainment, which have eroded investor sentiment and valuation of Hong Kong-listed companies.
- The crisis in the property sector, triggered by the default of China Evergrande Group, which has raised concerns over the financial stability and liquidity of other developers and lenders in Hong Kong.
- The geopolitical tensions between China and the West, which have increased the uncertainty and risk for Hong Kong as a financial hub and a gateway to China.
What are the challenges and opportunities for India’s stock market?
While India’s stock market has achieved remarkable growth, it also faces some challenges and risks, such as:
- The threat of a new wave of Covid-19 infections and variants, which could derail the economic recovery and disrupt normal life.
- The high valuations of Indian stocks, which could make them vulnerable to corrections or profit-taking. According to Bloomberg data, India’s price-to-earnings ratio (PE) is 28.6, compared to a global average of 20.9.
- The inflationary pressures and rising commodity prices, which could squeeze corporate margins and consumer spending.
- The fiscal deficit and public debt levels, which could limit the government’s ability to spend on infrastructure and social welfare.
However, India’s stock market also has many opportunities and potential drivers for further growth, such as:
- The demographic dividend and rising income levels, which could boost domestic consumption and demand for various goods and services.
- The digital transformation and innovation across sectors, which could enhance productivity and efficiency and create new business models and opportunities.
- The diversification and expansion of India’s equity market, with more companies going public or listing on foreign exchanges. According to data from Prime Database, India saw a record number of initial public offerings (IPOs) in 2023, with 120 companies raising $16 billion.
- The integration and cooperation with global markets and institutions, which could increase India’s visibility and influence as an emerging power.