India Becomes the Fourth-Largest Stock Market Overtaking Hong Kong

India's stock Market has surpassed Hong Kong to become the world's fourth-largest equity market, marking the first time it has achieved this rank. The combined value of shares listed on Indian exchanges reached $4.33 trillion as of Monday's close on January 22 2024, edging past Hong Kong's $4.29 trillion, based on Bloomberg's data. The United States currently holds the top spot with a market cap of $50.86 trillion, followed by China at $8.44 trillion and Japan at $6.36 trillion.

This milestone follows India's stock market capitalisation crossing $4 trillion on December 5, 2023, with significant growth reported in the past four years. The U.S., China, and Japan are the top three global stock markets. The past 12 months have been prosperous for Indian investors, with the Sensex and Nifty gaining 17-18% in 2023, compared to a modest 3-4% in 2022. Meanwhile, BSE MidCap and SmallCap indices surged by 45.5% and 47.5%, respectively. Notable gainers include Tata Motors, rising by 101%; Bajaj Auto, advancing by 88%; NTPC, with an 87% increase; L&T, gaining 69%; and Coal India, surging by 67%. In contrast, Hong Kong's Hang Seng Index recorded a cumulative decline of 32-33% over the past year.

Reason Behind the Surge in the Indian Stock Market

The surge in the Indian stock market is attributed to a growing retail investor base, consistent inflows from Foreign Institutional Investors (FII), robust corporate Earnings, and domestic solid macroeconomic fundamentals. India's appeal as an alternative to China has attracted global investors and companies, benefiting from a stable political environment and a consumption-driven Economy that remains among the world's fastest-growing. In contrast, Hong Kong's markets have experienced a decline, impacted by challenges such as Beijing's strict anti-COVID-19 measures, regulatory crackdowns, a property-sector crisis, and geopolitical tensions with the West.

The shift is further highlighted by Hong Kong losing its prominence in Initial Public Offerings (IPOs), with new listings drying up in the Asian financial hub. In 2023, overseas funds injected over $21 billion into Indian shares, contributing to the country's benchmark S&P BSE Sensex Index concluding an eighth consecutive year of gains.

Strong Gross Domestic Product (GDP) & Political Stability

India is experiencing a positive economic outlook with robust GDP growth forecasts, manageable Inflation, and political stability at the central government level. This has led many agencies to recognise India as the fastest-growing major economy. Foreign investors have refocused on India, becoming net buyers in the stock market and supporting benchmark indices' record levels. This surge in Indian stocks aligns with a significant downturn in Hong Kong, where several influential Chinese firms are listed.

Prominently Positive Future for the Indian Market

In 2023, Indian stocks experienced significant highs, driven by optimistic investors and increased domestic participation. However, a recent correction followed lower-than-expected earnings in HDFC Bank. Analysts speculate that anticipated rate cuts by global central banks in 2024 could instil confidence among investors, further propelling the Indian market Rally. Investors eagerly await the upcoming budget announcement on February 1.

Conclusion

The future of the Indian stock market appears promising and poised for continued growth. With recent achievements, India has showcased its resilience and attractiveness to global investors. The Indian stock market's robust performance in 2023, despite occasional corrections, reflects the confidence of investors. As an alternative to China, India stands out with its stable political environment and consumption-driven economy, positioning it as a significant player in the global economic landscape. While challenges may emerge, the resilience and adaptability of India's financial ecosystem bode well for its future as a critical player in the global financial markets.