Dow Jones tops 40,000: what sectors contributed to the rally and how do Indian peers compare?

While all eyes have been on the technology space, giant banks in the USA have been recording market-beating outperformance. Even with the global financial strain caused by central banks raising interest rates last year, American banking giants have been on a steady upward trend.

American Express, JPMorgan Chase, and Goldman Sachs were among the top gainers on the Dow Jones in the past year. The preference for large, good quality banks was driven by fears of risks escalating in some of the weaker banks in the wake of rising rates.

In 2023, regional banks in the USA saw a series of crises. The fall of First Republic and Silicon Valley Bank, led by higher interest rates, losses on real estate and increasing defaults caused a shift in the attitude towards smaller banks. Seeking security, investors turned to the stability of banking giants, especially those considered 'too-big-to-fail.'

Therefore, despite interest rates remaining higher-for-longer, investors have preferred banking giants which has reflected in their stock prices.

Unlike the US, in India, the banking system is a dichotomy of public and private lenders. During 2023 and 2024, public-sector banking stocks (PSBs) outperformed their private peers, as concerns of rich valuations kept investors away from private lenders' stocks.

Additionally, the regulatory crackdowns from RBI, such as the regulator barring Kotak Mahindra Bank from issuing fresh credit cards through the online route, added pressure to the private bank counters.

Consumption

Excluding Boeing, which has faced severe scrutiny over security concerns, the other top losers on the Dow Jones during the past year are Walmart, Nike and Johnson & Johnson which fall under the consumer goods and services category.

As inflationary pressure hit consumption, India and USA have seen consumption stocks suffer the same fate. In 2023, American consumer staples companies lost favour due to slowing revenue growth, while investors turned their attention to mega-cap tech firms. Defensive stocks were overlooked, as investors focussed on a small group of AI-related, tech mega-cap growth companies.

In India, subdued rural demand, increased regional competition and erratic weather patterns hit the demand for FMCG products, with customers downtrading to cheaper alternatives. As a result, the Nifty FMCG underperformed the frontline index, rising 13 percent as against Nifty 50’s 23 percent gain.

To regain market share, companies in both the countries began to increase grammage or slash prices, which has had a negative effect on their topline. However, the sector is poised for a turnaround, as inflation is set to cool from current levels, according to analysts.

Also Read | FIIs dump financial, IT, construction, oil & gas, FMCG holdings in first half of May

IT

Other leading Wall Street indices such as the S&P 500 and Nasdaq have also recorded fresh lifetime highs in the recent past. Most of these gains have been attributed to the outperforming IT sector stocks.

From Nvidia to Microsoft, the world’s eyes have been locked on the skyrocketing stock prices of the “Magnificent Seven.” These “Mag 7” stocks are either pure-play technology firms or tech-adjacent, which means the firms see a heavy utilisation of technology to enable their products or services.

With the increased usage of AI and semiconductors, the investor appetite for these counters seems insatiable. From around $300 levels, Nvidia shares clocked a meteoric rise of 200 percent in one year to hover around $900-levels. This rapid ascent underscores the thirst for mega-cap tech giants seen in America.

In comparison, the Indian IT space is comprised primarily of large-scale IT services companies. International clients contribute a large part to these firms’ toplines, as IT companies export their services to global organisations, usually headquartered in the USA.

However, global clients have adopted a more conservative approach towards investing in technology, especially because of recession fears. This has led to a slowdown in the domestic information technology space. The disruption expected because of AI is also weighing on Indian IT companies.

An island of opportunity, though, is the semi-conductor business. The central government is pushing domestic firms to establish semiconductor facilities, so India can fortify its place in the global semiconductor space. The Tata group and CG Power will be among the first to set up semiconductor fabrication units in India.

Now touted as "semiconductor stocks" ASM Technologies and Dixon Technologies have seen their shares race between 180 to 200 percent over the past year. Other semiconductor-related stocks such as CG Power, Vedanta, and Bharat Electronics have jumped between 80 to 150 percent.

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