Can India’s stock market boom of Samvat 2080 be surpassed?

This remarkable journey can be attributed to healthy corporate earnings, political continuity, a surge in domestic flows into equities and the resilient macro landscape that has weathered the global storms. Further, moderation in inflation and expectations of global interest rates having peaked in recent months also supported equities.

Markets have negotiated critical events such as India’s general elections, ongoing wars in Gaza and Ukraine, and tensions in the South China Sea, as well as expectations of a slowdown in some major economies.

Despite the recent correction of about 7% from its top, the Nifty has given a return of around 26% in Samvat 2080 so far (14 Nov 2023 to 30 Oct 2024). Broader markets have significantly outperformed, with the Nifty Midcap 100 and Smallcap 100 rallying 38% each.

Also read: Which way will Sensex swing in new Samvat? Inaugural Mint survey joins the dots

Every dip has been met with robust buying activity led by strong domestic flows, including large retail participation. Capital market activities are thriving, with total fundraising—including IPOs, QIPs, FPOs, and OFS—reaching ₹1.65 trillion in calendar year 2024 to date, the highest in the past three years. Mutual fund SIP flows also hit record highs of ₹24,508 crore in September 2024, reflecting growing investor confidence.

India has significantly outperformed its global peers, resulting in an increased weightage within Foreign Institutional Investors’ (FIIs) portfolios. 

Simultaneously, China’s recent stimulus measures have been positive for China over other emerging economies. As a result, we believe that minor adjustments in portfolio weights by FIIs may have contributed to recent outflows, with FIIs selling shares worth more than ₹1 trillion in the secondary market in October 2024. 

This selling pressure, however, has been counterbalanced by strong buying from Domestic Institutional Investors (DIIs) and robust participation by FIIs in the primary (or IPO) market.

India’s economy remains strong despite subdued global growth. This is reflected in growth estimates by several global agencies. Both the World Bank and IMF forecast India’s economy to grow at 7% for 2024-25. Moody’s has raised India’s real GDP growth to 7.2% for 2024 (up from 6.8%).

What lies ahead: Going forward, in the near term, key state elections in Maharashtra and Jharkhand in November 2024, followed by Delhi in February 2025, will be pivotal. 

The upcoming US presidential election may also introduce volatility, especially if significant policy shifts are expected to occur after a new president takes office. 

Also read: Vivek Kaul: Stock market mania and the shrinking case of household deposits

However, potential rate cuts by the Reserve Bank of India (RBI) could support equity markets by lowering borrowing costs and spurring growth and investment.

Currently, the Nifty is trading at a 12-month forward price-earnings (PE) ratio of 21.5, just 5% above its 10-year average of 20.4. This reflects optimism about long-term growth, particularly as India is projected to be one of the world’s fastest-growing economies. 

Other macro factors also suggest a strong outlook, like GST collections, advance tax intake, power demand, etc. Nifty earnings growth is anticipated to remain steady at around 12% CAGR over 2025-26.

As we approach significant economic events and seasonal peaks, retail investors should remain vigilant and adopt a selective investment strategy. 

By focusing on sectors with strong fundamentals and growth potential, investors can navigate the complexities of the current market. The combination of a revival in rural demand,

festive season sales and the upcoming wedding season is likely to boost consumption-related sectors, enhancing overall market sentiment.

While we anticipate a moderation in earnings growth after four years of robust increases, we expect pressures from commodity prices and diminishing benefits from improved asset quality in banking, financial services and insurance (BFSI). 

For 2024-25, earnings growth is likely to be modest, at around 7%, following a high base of 2023-24, which saw 26% growth over the previous year. This year’s growth will largely come from the BFSI sector, with positive contributions from technology, utilities and healthcare.

In times of global volatility, we expect sectors tied to domestic structural and cyclical trends—such as financials, consumer products, industrials and healthcare—to perform well.

As the market shifts towards defensive sectors, discretionary consumption is likely to benefit from changing purchasing behaviour, particularly as consumers transition from unorganized to organized retail channels.

The healthcare sector is experiencing robust domestic demand and niche product launches, while financial sector valuations remain attractive with improving growth visibility.

Also read: The good, the bad and the ugly: Tips from Samvat 2080

Niche sectors like jewellery, electronic manufacturing, electric vehicles, renewables, e-commerce and digital technologies are also poised for significant growth. 

The electronic manufacturing services (EMS) sector, in particular, is showing strong potential with robust order books and expansion plans. India is set to lead in global digital infrastructure, with e-retail penetration projected to reach 10% by 2027.

In all, there is much for investors to look forward to.

Siddhartha Khemka is head of research, wealth management, Motilal Oswal Financial Services.