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Is It Safe to Call India the World’s Best Performing Stock Market?

New Delhi (India), April 7: A stock market or stock exchange is a place that facilitates the trade of industrial and financial security in a systematic and regulated manner. As a result, the stock market plays a key role in the development of a country’s industrial and overall health. Moreover, any stock market acts as a barometer to measure the economic health of a country. 

This applies to India also. As per a report by the Centre for Economics and Business Research (CEBR), a leading London-based consultancy, India will become the third economic superpower by 2037 and a $ 10 trillion economy by 2035. The report also says that India will rise from fifth place on the World Economic League Table in 2022 to third in the global rankings by 2037. Therefore, understanding the Indian stock market has become more important than ever. So, what does this Indian stock market looks like today and what is its future? This is the question that Kishore Subramanian, the Founder of Shree Consultants, has tried to answer.     

As of November 2022, the BSE has a total of 6,655 listed firms, while there are the NSE had 1,920 companies listed on it as of March 31, 2021. From the low of March 2020, India’s NSE Nifty 50 Index has more than doubled and is currently one of the best performers in Asia and the world. According to Bloomberg, the inflow of investments from abroad came up to a total of $7 Billion in 2021 alone, the highest among the emerging markets in Asia. 

On a long-term basis, the Indian markets have underperformed compared to the US markets. However, over the last two years, the tables have completely turned. In 2022 so far, dollar returns on the Nifty 50 were down 4.3 per cent against a 16 per cent fall for the S&P 500 and a 19 per cent decline for the Shanghai Composite.

The Indian stock market has slipped from a range of 17,500 -18,100 to a lower range of 17,500-16,700/16,800. It was observed that, the index might to move in this range for the next few weeks according to experts. 

The market as a whole was negative in March “because of financial year end tax planning and investment by retail into various tax exemption products which would reduce money inflow into markets directly. Looking at the market scenario, there are few factors resulting from the continuous selloff with low to no positive triggers in domestic markets, rise in global uncertainty specifically in banking sector after SVB issues and El Nino expected effect for 2023 monsoon which could raise concern over rural demand and Nifty earnings going forward.

This is definitely not the time to reduce exposure to equity. Also, the past experience shows that buying post a 10-12% decline from the recent peak normally tends to give handsome returns in the next 12 to 24 months.  It is advisable that if someone has long term money, they definitely should increase the allocation in equities, long term means minimum 1-3 years from now. 

Alternatively, Research Analysts suggest waiting for more correction before increasing allocations with fundamentally strong stocks. Similarly, it is also recommended that a calibrated approach of slowly building positions in equities. 

Various global events have caused havoc on equity markets. Strong earnings and inflows from FIIs could reverse the current downtrend. India is resilient on the economic front and it should only take a couple of months before the dust settles down completely.

With negative news flows from Adani Group taking a back seat and a possibility of no rate hike by the US Federal Reserve increasing by the day, there might be a pull-back from the current levels which cannot be ruled out. Also, the bond markets are suggesting on the same lines which provides additional confidence that a further sharp sell-off looks unlikely.

China’s dimming attraction because of rising regulatory and political instability is also likely to push foreign capital towards Indian shores amid a lack of investable options within an emerging market basket, analysts said. 

However, all of the future growth of India’s stock market is dependent on a plethora of global factors. These global factors include various geopolitical scenarios, for example, the war between Russia and Ukraine, the probability of another wave of the pandemic, and how much the world would be affected by the recession. The coming decade will be very crucial and pivotal for the future of India’s economy as well as its stock market.

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