India’s $4 trillion stock market attracts foreign investors despite major risks, here’s why

Feb 5, 2024

Feb 05, 2024 03:38 PM IST

As China’s stock market is struggling to keep up, the Indian indices are attracting billions of dollars from foreign investors.

The Indian stock market indices have remained volatile over the past month due to the election year and quarterly results, but the combined valuation of the listed companies touching $4 trillion in the current fiscal year.

Foreign investors see Indian markets as an alternative to China
Foreign investors see Indian markets as an alternative to China

Not only domestic investors, but foreign investors are also pouring millions in the Indian stock market due to the growth of BSE Sensex and NSE Nifty in the past year. Indian markets have also attracted foreign investors ever since China’s markets starting showing warning signs of high risks, Reuters reported.

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The stream of investment has lifted the benchmark NSE Nifty 50 Index 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 as emerged as the fast-growing alternative to Chinese markets, where investors are willing to overlook the risks involving overprices shares, upcoming 2024 Lok Sabha elections and regulatory uncertainty.

Vikas Pershad, portfolio manager for Asian equities at M&G Investments told Reuters, “The recent rally notwithstanding … the upcoming elections notwithstanding, I think India is a good market for long term investors.”

Meanwhile, Chinese market are experiencing their worst week in years as Shanghai Composite Index briefly fell more than 3%, hitting its lowest level in five years on Monday. Last week, the index fell 6.2 percent.

Nifty, Sensex spike expected in FY2025

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. ICICI Direct also predicted that pre-election rally will lead to Nifty touching 23,400 in June this year.

ICICI Direct further said that the median market returns for election years has been 17 percent over the past three decades, which have seen seven general elections so far.

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.

(With inputs from Reuters)

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