Global investors’ desire to own a piece of the brightest market in the emerging world has been the catalyst, says Remi Olu-Pitan, head of multi-asset growth and income at asset manager Schroders, but that has meant an under-appreciation of the vulnerability and risks
MUMBAI:
India’s $4 trillion stock market is pulling in billions of dollars of domestic and foreign money as investors flock to a fast-growing alternative to China, brushing aside risks around overpriced shares, upcoming elections and regulatory uncertainty.
The stream of investment has lifted the benchmark NSE Nifty 50 Index (.NSEI), opens new tab by a third in the last 10 months and attracted $20 billion in foreign inflows in 2023, according to India’s national depository data.
India’s allure is rising this year as global investors seek substitutes for sickly Chinese markets and as expectations grow that national elections this year will see current Prime Minister Narendra Modi return for a rare third term.
And investors seem happy to overlook risks, such as the already lofty levels the market is priced at and any political surprises.
“The recent rally notwithstanding … the upcoming elections notwithstanding, I think India is a good market for long term investors,” said Vikas Pershad, portfolio manager for Asian equities at M&G Investments.
A steady flow of cash into the stock market from regular retail investment plans, currently averaging $2 billion a month, and buying by domestic institutional investors have been tailwinds.
Goldman Sachs sees the Nifty index, currently around 22,000, hitting 23,500 by the end of 2024, while local brokerage ICICI Securities expects a nearly 14% jump.
The market has become one of the world’s most expensive ones. The 12-month forward price-to-earnings ratio, a widely used valuation measure, is 22.8 for the Nifty 50, three times China’s and higher even than the U.S. S&P 500 valuation at 20.23, according to LSEG data.
Despite lofty valuations, ICICI Securities expects Nifty earnings to grow at a compounded annual rate of 16.3%.
Global investors’ desire to own a piece of the brightest market in the emerging world has been the catalyst, says Remi Olu-Pitan, head of multi-asset growth and income at asset manager Schroders, but that has meant an under-appreciation of the vulnerability and risks.
“Whilst longer term we like India, we completely agree with the growth story, we just worry the market might not be pricing some of the risks that are brewing at the moment,” she said.
According to the International Monetary Fund (IMF), India’s GDP is expected to grow by 6.5% in 2024, versus China whose growth estimate is 4.6%.
PERFORMANCE PRESSURE
To be sure, investors are bracing for possible short-term volatility, particularly around the elections, and for the Nifty’s rise to be less than linear. As they look to hedge the risk, implied stocks volatility, is rising.