Tech stocks' earnings reports withstand pressure, India's key stock index hits a new all-time high

Under the boost of the information technology sector, India's key stock index reached a new historical high on Friday, with a cumulative increase for the week.

The CNX Nifty index of the National Stock Exchange of India rose by 1.14% to a record high of 21,894.55 points, with a cumulative increase of 1.22% for the week. The SENSEX index of India closed up 1.18% at 72,568.45 points, continuing to hit a new historical high, with a cumulative increase of about 0.8% for the week.

Tata Consultancy Services (TCS) and Infosys announced better-than-expected revenue growth in the third quarter, indicating that overall demand conditions have not deteriorated further, easing market concerns and boosting investor sentiment. These two important Indian companies recorded closing gains of 3.94% and 7.93% respectively on Friday.

Industry insiders commented that the better-than-expected performance of TCS and Infosys, as well as their comments, boosted the sentiment of the entire Indian market at the beginning of the earnings season.

TCS, Infosys, and six other technology stocks ranked among the top seven gainers in the blue-chip index, with the lowest increase being 3.77%. Among them, HCLTech and Wipro closed up 3.77% and 3.85% respectively due to the release of their financial reports after the market. The rise of these giants drove the Indian IT index up 5.14% on Friday, achieving the best single-day performance since October 8, 2020, and reaching a 21-month high.

Before the earnings season, the market was once quite worried. Analysts believe that the valuation of Indian technology stocks is already at a high level, and it is expected that the revenue of India's leading software companies in the fourth quarter will only remain flat compared to the previous quarter, and the upward trend may not be sustainable.

On the same day as the Indian stock market closed on Friday, the country's inflation data was released. India's CPI in December increased by 5.69% year-on-year, with market expectations at 5.88%. The inflation target range set by the Reserve Bank of India is 2%-6%, and the latest inflation data is still within the target range of the central bank.

Friday's news also showed that Indian regulators hope that stock trading can be settled immediately, aiming to attract more investors through reforms. The Securities and Exchange Board of India proposed to start same-day settlement from March and achieve real-time settlement by 2025.

The short squeeze in the US stock market in 2021 caused the prices of some stocks to soar, and at the same time made brokers, including popular online broker Robinhood, unable to provide collateral for related transactions within the two-day settlement window. Since then, the global market's demand for faster settlement has been growing. In addition, faster settlement will also attract retail investors who prefer to bet on stock derivatives rather than directly on stocks.

India's stock index has risen by about 20% in 2023, marking the eighth consecutive year of cumulative gains and setting a record for the longest consecutive years of gains. In terms of market value, India's stock market surpassed the $4 trillion mark as of December 6 last year, with a total market value growth of about twice since the low point in March 2020. Therefore, there are divergent opinions on whether India's stock market can continue to rise this year. Behind the record high of the Indian stock market lies the support of fiscal stimulus. In the 2022-2023 fiscal year, the fiscal deficit of the Indian central government narrowed slightly to 6.4% compared to the previous fiscal year. However, when combined with the deficits of various states, India's overall fiscal deficit still stands at a high level of 9.4% of GDP, reaching a nearly 20-year high. According to the goals set by the Indian Ministry of Finance, the central fiscal deficit as a percentage of GDP is expected to decrease to 5.9% in the 2023-24 fiscal year and further decrease to 4.5% by the 2025-26 fiscal year.

According to analysis by Wall Street Journal, the imbalance between the current account balance and fiscal deficit in India may pose financing challenges and currency pressures, thereby affecting the relative returns of the Indian market.