By Shreesh BiradarWhen the bulls arrive, it sometimes becomes a stampede. And this time India is at the center. The Nifty 50 benchmark index closed on Wednesday above the 18,700 mark, less than 1% away from its all-time high of 18,887.6. Morgan Stanley predicts that the Sensex will hit 68,500 by December, 10% higher than where it is now.
So 2023 is turning out to be an interesting year for the India story. The country is building closer ties with the US and Europe, and PM Modi is meeting Joe Biden in Washington on June 21 to finalize a defense partnership. The writer Fareed Zakaria put it well when he said last week, "India is becoming a master of its own destiny for the first time in a very long while."
How has this happened? India is coming to the forefront as the global economy battles a slowdown. India is the only large Asian economy that is growing at a fast pace, and analysts give it a 'zero chance' of recession.
In FY23, India achieved a GDP growth rate of7.2%, surpassing China's 3% in 2022. India’s CPI inflation dropped to 4.7% in April, one of the lowest among emerging markets, trailing behind only Brazil (4.18%) and China (0.1%).
For many years, China has been the brightest star in Asia's sky, outshining the rest. But its slowing economy and abrupt policy changes under Xi Jinping have hurt investor sentiment. South Korea, Japan and India are emerging as new investment hotspots. India in particular, has become a promising alternative to China, and the world is counting on it to drive global growth.
In this week’s Analyticks:
- India: A bright spot in global equity markets?
- Screener: Big changes up or down in FII holding
Let’s get into it.
Taming inflation is key to economic growth
The flow of money into and out of equity markets is typically decided by inflation and interest rates. These two numbers have not been very pretty for the EU and the US.
The Eurozone CPI for April was at 7%, while the US recorded 5%. India's inflation, on the other hand, stood at 4.7% during the same month, and has been falling at a faster pace.
Developed economies have also increased interest rates by more than 4% over the past 12 months, while the Reserve Bank of India (RBI) raised rates only by 2.5%.
Not so cool anymore: the declining appeal of China
According to the IMF, India and China have accounted for half of global growth in 2023. However, China’s growth rate isprojected to slow to 5.2% over the year, and 4.5% in 2024, marking a significant deceleration compared to its impressive 9% CAGR growth from 1989 to 2022.New changes to China’s counter-espionage law, granting extra powers to state agencies to investigate foreign businesses, have also raised concerns among foreign investors.
China’s worsening relationship with developed nations is putting pressure on its growth story. The US has stepped up restrictions on a long list of Chinese companies, including gaming and entertainment apps, server makers, and chip manufacturers. Europe is reviewing products from Chinese giants like Huawei and ZTE. As a result, investments into China have slowed down, with a 40% decline inFDI from the USbetween 2020 and 2022. In the same period, FDI inflows from Europe to China dipped by 19.7%.
India's equity markets stand out in an uncertain global economy
India has shown remarkable resilience in the face of global uncertainties by shielding its economy from inflation, banking crises and crude oil shocks (through Russian oil imports). The IMF predicts a GDP growth rate of 5.9% for India in FY24, while the RBI puts it at 6.4%.
In May, India's manufacturing PMI reached a 31-month high of 58.7, while China, the largest manufacturing hub, recorded 50.9.
Note: A value above 50 indicates growth
India’s strong economic indicators have pushed its stock market to new highs, reclaiming its position as the fifth largest stock market with a market cap of $3.3 trillion. The Nifty PSU Bank index touched a decadal high after gaining 56% in the past year. Midcaps, which offer a blend of value and growth, have seen significant gains in market cap. The Nifty Midcap 100 saw gains of 22% in the past year, against Nifty Smallcap 100’s 14%.
Among sectoral indices, Nifty PSU Bank (59%) led the way, followed by Nifty FMCG (36%) and Nifty Auto (27%).
The FMCG segment saw growth on account of rising rural penetration. In Q4FY23, the FMCG market grew 14.1%, with rural markets growing at 16.8% vs urban at 7.9%. The auto segment, which contributes to 49% of India’s manufacturing GDP, was driven by growth in passenger vehicles (26.7% YoY).
As of May 2023, foreign portfolio investors (FPIs) have investments to the tune of Rs 48,79,628 crore in Indian markets. Major sectors holding FPI investments are Financial Services (Rs 16,46,306 crore), Oil, Gas & Consumables (Rs 4,76,503 crore) and Information Technology (Rs 4,87,869 crore)
Japan, South Korea and India are drawing foreign investors
Asia, excluding China and Japan, has seen a significant influx of foreign investment totaling $23 billion in 2023. Japan’s Nikkei index has gained 25.28%, while South Korea’s Kospi index rose 17.51% since the start of 2023. India has experienced more modest growth with a 2.33% gain. These three nations have outperformed China by huge margins in 2023.
Japan's economy has got a boost from positive changes in corporate governance and the Bank of Japan's move towards tighter monetary policies. Foreign inflows into Japan reached nearly $30 billion in CY23, propelling the Nikkei index to a 33-year high.
In South Korea, FII inflows have amounted to $9 billion. The boom in artificial intelligence has driven up Korea's chip manufacturing stocks, while restrictions on Chinese chip manufacturers have improved prospects for South Korean players. Korean automotive stocks have also contributed to its economic resilience through robust export performance.
Between 1990 and 2019, the annual income for an average Chinese person jumped 32 times, from $318 to $10,276. That's a tough act to follow, but as Zakaria pointed out, it is India's game to win or lose.
Screener: Big changes up or down in FII holding
As foreign institutional investors turn net buyers of equities in the Indian market, we take a look at stocks which have seen the highest change in FII holdings over the past quarter. This screener highlights stocks with big shifts (> 2% or -2%) in FII shareholdings on a QoQ basis in the most recent quarter.
It features stocks from the automobile & auto components, banking & finance and software & services sectors. Major stocks that appear in the screener are Equitas Small Finance Bank, Sona BLW Precision Forgings, Go Fashion (India), Jindal Stainless, PVR Inox, Dixon Technologies, HDFC Asset Management and RBL Bank.
Equitas Small Finance Bank witnessed its FII holding increase by 18.6 percentage points over the past quarter to 22.7%. Ellipsis Partners was the largest buyer, acquiring a 2.7% stake in the company, followed by Massachusetts Institute of Technologyand Rimco India as they bought a 2.5% and 2.1% stake, respectively, over the same period.
Sona BLW Precision Forgings’ FII holding grew by 13.4 percentage points to 24.7% over the past quarter. This rise was aided by the Government of Singapore buying a 4.1% stake in the company. Fidelity Funds and BNP Paribas Arbitragealso bought a 1.3% stake each in the company.
On the other hand, PVR Inox witnessed the steepest fall of 10.8 percentage points in FII holdings over the past quarter. Its FII holding currently stands at 31.2%. The biggest contributors to this decline were SBI Magnum Children's Benefit Fund and Nippon Life India Trustee, as they sold a 1.2% and 1.3% stake, respectively, in the company.
You can find more popular screenershere.
