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India’s star shines as stocks reach an all-time high

market snapshot

Insight
9 December 2022 |
Macro
Indian equities surge this year as economy becomes an attractive alternative for investors moving away from China.
  • The end of November signalled an all-time high for India’s equity market.
  • The Nifty 50 Index has shot up by 7% this year1, comparative to the MSCI’s broad emerging market index which is down by 16%.
  • Investors are turning from China to India as the country’s strong economic growth, financial reforms and pro-business government boost appeal.

The Indian stock market hit an all-time high in November as the country benefits from the government’s pro-business reforms attracts investment away from China. The country’s benchmark Nifty 50 Index has shot up by 7% this year2, comparative to the MSCI’s broad emerging market index which is down by 16%.3

“India’s expanding domestic market means the country can weather a looming global recession better than most other emerging markets. In the longer term, China’s decoupling with the US may also pave the way for Indian firms to boost their presence worldwide,” says James Cook, Head of Global Emerging Markets at Federated Hermes Limited, as he considers what these developments mean for the future of the world’s sixth largest economy.4

Figure 1: India’s star is shining – will the rally sustain?

Source: Bloomberg, Nifty 50, as at 8 December 2022.

The market responded positively to the ruling Bharatiya Janata Party’s (BJP) victory in the key state of Gujarat in regional elections this month5, with many observers concluding it should provide political stability ahead of the union budget due to take place in early 2023.

India’s expanding domestic market means the country can weather a looming global recession better than most other emerging markets.

According to a poll of analysts by Reuters, India’s stock market is forecast to rise another 9% by the end of 20236, despite widespread expectations of a gradual slowdown.

India is forecast to become the third largest economy in the world by the end of this decade7, according to research conducted by S&P Global and Morgan Stanley. Consultancy firm Capital Economics predicts that the country’s real GDP will increase by an average of 6% per year until 20308, faster than any other global economy.

Figure 2: Forecast growth of India’s economy, nominal GDP ($tn)

Source: The Financial Times, as at 8 November 2022.

Elsewhere in global markets…

The European Union has reduced gas demand by a quarter in November, despite the drop in temperature this winter, as evidence mounts that Europe is successfully cutting down its reliance on Russian energy in the wake of the Ukraine conflict. Commodity analytics company ICIS indicates demand was down by 24%9 compared to the five-year average in November.

Audra Delport, Head of Corporate Credit Research at Federated Hermes notes that, while positive, this development does not remove the longer-term risks for EU countries. “The prospect of gas shortages and higher prices persisting for years presents substantial structural challengers for Europe, including the risk of deindustrialisation and its economic and social consequences,” she says.

“While industry has driven much of this reduction by implementing energy-saving measures and switching to alternatives, a key driver has been halting production which risks becoming more permanent, as evidenced by recent news that BASF, one of the world’s biggest chemical companies, will be permanently downsizing its European operations.”

For more information on our global emerging markets outlook, watch the latest ‘The Meeting Room’ webcast.  

1 The Financial Times, as at 5 December 2022.

2 Bloomberg, from January to December 2022.

3 Bloomberg, from January to December 2022.

4 The World Bank, 2022.

5 The Independent, as at 8 December 2022.

6 Reuters, as at 30 November 2022.

7 S&P Global Market Intelligence, as at 21 November 2022.

8 The Financial Times, as at 8 November 2022.

9 ICIS data, The Financial Times, as at 5 December 2022.

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