“With government continuity now in place, we believe the market can look forward to further structural reforms, giving us more confidence in the earnings cycle. Macro stability with rising GDP growth relative to real rates should extend India’s outperformance over emerging markets equities,” Moody’s said in its latest report .
Mumbai: Indian stock markets have seen a robust rally since the new government’s formation, closing at an all-time high in the last week. According to top rating agencies, the indices are set to gain new highs in the next 12 months.
It was the second consecutive week when Indian frontline indices Sensex and Nifty made a new all-time high of 77,145 and 23,490 respectively, as inflation cooled off.
The stock market is attracting global funds which are going to accelerate soon.
During the week, Foreign institutional investors (FIIs) have invested Rs 2,030 crore and domestic institutional investors (DIIs) have invested Rs 6,293 crore.
Foreign investors made a strong comeback with a net inflow of Rs 11,730 crore (USD 1.4 billion) in the week ending July 14, driven by positive signals from domestic and global markets.
The net inflow was in stark contrast to the net outflow of Rs 14,794 crore (USD 1.77 billion) witnessed in the preceding week from June 3-7, data with the depositories showed.
With the latest flow, net outflow stood at Rs 3,064 crore in the month so far till June 14.
“After the roller coaster ride in the market in the first week of June, stability has returned to the market as indicated by the sharp fall in India VIX from 27 on June 4 to 12.82 on June 14. This fall in India VIX indicates the return of stability and a likely consolidation phase in the market,” VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.
Moreover, the stock markets have emerged as a favourite investment destination for retail investors.
Arvinder Singh Nanda, Senior Vice President, of Master Capital Services Ltd said, “Several factors contributed to the market’s upward momentum. Firstly, there was political stability following Prime Minister Narendra Modi’s oath-taking ceremony. Secondly, the continuity of economic reforms was expected due to minimal changes in the ministerial portfolios under Modi 3.0.”
“Lastly, the significant decrease in India VIX, the volatility index, by nearly 60 per cent from its recent high of 31.71 on June 4 contributed to a more stable market environment after the election-related uncertainties were resolved,” he added.
According to global rating agency Moody’s, its “12-month forward BSE Sensex target is 82,000, implying 14 per cent upside”.
In its latest report, Moody’s said that the key benefit to the market of the NDA’s re-election is “policy predictability, which will influence how growth and equity return pan out in the coming five years”.
“We believe the government is likely to continue focusing on macro stability (i.e., inflation hawkishness) to inform policy,” according to the report.
“With government continuity now in place, we believe the market can look forward to further structural reforms, giving us more confidence in the earnings cycle. Macro stability with rising GDP growth relative to real rates should extend India’s outperformance over emerging markets equities,” it added.
According to Moody’s, India’s stock market has been making new highs, and the debate now is over what could take the market materially higher.
“In our view, the government’s mandate is likely to result in policy changes that will lengthen the earnings cycle and surprise the market,” it emphasised.
With Modi 3.0 in power, more will come over the next five years in the form of positive structural shifts.
Moreover, India has reclaimed the fourth-biggest global equity market tag from Hong Kong. The country’s market capitalisation soared 10 per cent to reach $5.2 trillion.
In comparison, Hong Kong’s equity market cap is $5.17 trillion, down 5.4 per cent from the high of $5.47 trillion this year.
At present, India is the second-largest emerging market after China.
Global investors now prioritise liquidity and can’t afford to ignore the Indian stock market, which is booming with retail investments, according to global analysts.