For eight consecutive years of growth! The Indian stock market is on fire, with a total market value surpassing Hong Kong.

In less than three years, the market value of Indian listed companies has increased by $1 trillion.

On December 6th last year, the market value of the Indian stock market exceeded $4 trillion, second only to the United States, China, and Japan.

On January 23rd this year, the overall market value of the Indian stock market surpassed Hong Kong, becoming the world's fourth-largest stock market.

The total value of stocks listed on Indian exchanges reached $4.33 trillion, while the market value of stocks listed on the Hong Kong Stock Exchange was $4.29 trillion.

The NSE Nifty 50 index, the main benchmark index in India, has reached a new high with a growth rate of over 23% in the past year, marking the first continuous eight-year increase in history.

Similarly, the BSE Sensex index, another benchmark index in India, has also reached a new high.

The BSE Sensex index was around 20,000 points at the peak of the global bull market in 2007, and now it is over 72,000 points, an increase of more than double.

The Nasdaq index in the US was around 2,680 points at its peak in 2007, and now it is over 15,000 points, an increase of more than 4.5 times.

On the other hand, the Shanghai Composite Index in China was around 6,124 points at its peak in 2007, and now it is below 3,000 points.

Why are they continuously reaching new highs?

Rajiv Batra, a strategist at JPMorgan, analyzed in a research report: "We believe that recent factors driving the Indian stock market higher include strong economic data, corporate earnings data, falling oil prices, and strong domestic fund flows."

Strong Economic Growth in India

In the third quarter of last year, India's GDP grew by 7.6% year-on-year, ranking first among the top ten economies in the world. The growth rates for the first three quarters were 6.1%, 7.8%, and 7.6% respectively.

Many Wall Street investment banks have raised their economic growth forecasts for India. Barclays and Citigroup predict that India's economy will grow by 6.7% in the 2023-2024 fiscal year, higher than their previous forecasts of 6.3% and 6.2% respectively. Morgan Stanley has also raised its GDP growth forecast for India in the 2024 fiscal year from 6.4% to 6.9%. Standard & Poor's Global Ratings has raised its forecast for India's GDP growth rate for the fiscal year 2023-24 from 6% to 6.4%, while lowering its forecast for the fiscal year 2024-25 by 50 basis points to 6.4%. For the fiscal year 2025-26, the agency maintains its forecast of 6.9% for India's GDP growth.

Goldman Sachs also upgraded its rating on the Indian stock market to "buy" last month, citing the country's "best structural growth prospects in the region." Nomura Holdings also maintained its "buy" recommendation for the Indian stock market in its latest Asia-Japan strategy report.

Data shows that in 2023, overseas funds invested over $21 billion in the Indian stock market, while domestic funds invested over $20 billion. In 2022, foreign investors' net purchases reached a record $17 billion.

What are the risks?

However, the hot market has also raised concerns among some analysts about overvaluation and crowded trading. The forward price-to-earnings ratio of the BSE Sensex index is currently 20 times, slightly higher than the five-year average and higher than the global stock market's 16 times. Stock market volatility has also risen in line with the index in recent times.

At the same time, data shows that the number of Indian investor accounts has surged from 3.93 million in December 2019 to 13.23 million at the end of October 2023. The influx of retail investors may pose challenges to market regulation. Ajay Tyagi, former chairman of the Securities and Exchange Board of India, said, "Retail investors with limited financial knowledge hope to make easy money, but there is a bubble in the market."

In addition, risks from election results have not been completely eliminated. Chris Wood, global head of equity strategy at Jefferies LLC, said that the 2024 Indian general election remains a major risk, and if the ruling BJP suffers an unexpected defeat like in 2004, the Indian stock market is expected to experience a 25% or even larger correction. He added that if the BJP loses the election, although the current government's series of radical reform projects will not be canceled, there will be "significant adjustments." In May 2004, the ruling National Democratic Alliance suffered a defeat in the general election, and Atal Bihari Vajpayee, the founder of the Bharatiya Janata Party who served as Prime Minister three times, submitted his resignation. The Indian stock market plummeted by about 20% in two days.

ETFs for the Indian market

Currently, there are several ETFs available in the Hong Kong and US stock markets that focus on the Indian market.