India stocks @ Rs 400 trillion: What caused the last Rs 100 trillion swell

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Amid a sustained bull run, India's stock market achieved a monumental record of over Rs 400 trillion in combined market capitalisation of all BSE-listed firms. This remarkable feat, equivalent to 1.33 times the size of India's economy, was achieved in just 9 months, the shortest period for a Rs 100 trillion market-cap swell thus far.

BSE’s combined market capitalisation hit Rs 100 trillion for the first time in March 2014, after which it took nearly 7 years to double it to Rs 200 trillion. The latest Rs 100 trillion addition in BSE firms’ market capitalisation came along in just 9 months. In these 9 months, the Sensex has climbed about 15 percent, whereas the midcap and smallcap indices have surged about 40 percent each.

This is despite concerns raised by regulatory bodies such as SEBI and the Reserve Bank of India regarding markets being ‘frothy’. After a mild blow last month after the regulatory walk-and-talk aimed at curbing inflows into small-cap funds, they rebounded strongly over the past week.

BSE-listed firms added the latest Rs 100 trillion in m-cap in just 9 months.

Leading sectors that contributed to the rally in the last nine months include Realty, PSU banks, Auto, Energy, Infra, and Pharma. Besides, Public Sector Units (PSUs) have also been the stars of this rally, thanks to increased investor confidence tied to government policies and 'Modi ki Guarantee'. The PSU indices and PSU Bank index -- all have nearly doubled in one year.

What are the underlying economic fundamentals that helped achieve this feat and are those factors sustainable? Driving this surge is a convergence of factors, including buoyant economic indicators, burgeoning domestic investment, and a backdrop of political stability.

What helped Rs 100 trillion m-cap addition in just 9 months

Domestic retail participation has increased, with demat accounts surpassing 15 crore by March 2024. Over the past five years, domestic equity inflows have totaled $92.7 billion. The recent financial year witnessed robust IPO activity, with 24 IPOs raising over Rs 67,500 crore, indicating a strong appetite for new market entrants.

All this on the back of strong economic growth, which exceeded economists' projections.

India stands out in South Asia with a recent GDP growth rate of 7.6%. This is supported by encouraging corporate earnings estimates -- Motilal Oswal and Antique expect their coverage universe to report an on-year earnings growth of 6-8 percent in Q4FY24. HSBC research has a forecast of 17.8 percent earnings growth for 2024.

Sectors like banking, healthcare, and energy are well-positioned for growth, although some sectors may face challenges: such as Information Technology, due to slow discretionary spending in the US; and FMCG, due to consumption stress at the lower end in the domestic markets.

Retail investors, who are now a big constituency in the market, are still gung-ho on small- and mid-cap stocks. As the country heads into national election, expectations of continued political stability under the BJP is keeping investors confident.

Where are India's share markets headed now? What to watch

Going ahead, as the earnings season begins, the spotlight will be on India's IT sector which will lead the earnings season. HDFC Institutional research predicts its IT coverage universe to report a 2.6 percent on-year rise in rupee revenue; other brokerages expect as much as 2-6 percent on-year growth for leading firms such as TCS and Infosys.

While domestic news remains generally positive, global factors, especially US Fed rate decisions, could impact market volatility. Analysts suggest being selective on stocks, and not get tempted by temporary jumps in broader market indices.

In an interview to Moneycontrol, Kunal Jain of Alpha Capital said that the Indian markets are likely to stay within a broad range until the general election results are announced on June 4, 2024, with expectations of a favourable outcome for the current government already factored in.

Significant market movements are expected post-elections, driven by election results, the final Union Budget, the US Federal Reserve decisions, and corporate earnings.

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